The FTC recently settled its enforcement action involving data privacy and security allegations against an online seller of customized merchandise. In addition to agreeing to pay $500,000, the online merchant consented to multiyear compliance, recordkeeping, and FTC reporting requirements. The essence of the FTC’s seven count Complaint is that the merchant failed to properly disclose a data breach, misrepresented is data privacy and security practices, and did not maintain reasonable data security practices.

The federal consumer protection agency has broad enforcement authority under Section 5 of the Federal Trade Commission Act (FTC Act) which prohibits ”unfair or deceptive acts or practices in or affecting commerce.” This enforcement action follows other recent FTC actions on similar issues, suggesting the agency ramping up consistent with the overall direction of the Biden Administration concerning cybersecurity. There are steps organizations can take to minimize FTC scrutiny, and one place to start might be website disclosures, perhaps in connection with addressing the imminent website privacy compliance obligations under the California Privacy Rights Act.

In reviewing the FTC enforcement action in this matter, it is interesting to see what the agency considered personal information:

names, email addresses, telephone numbers, birth dates, gender, photos, social media handles, security questions and answers, passwords, PayPal addresses, the last four digits and expiration dates of credit cards, and Social Security or tax identification numbers

Some are obvious, some not so much.

The FTC also examined the merchant’s public disclosures concerning privacy and security of personal information, including from its website privacy policy, as well as email responses to customers and checkout pages. Here’s an example:

[Company] also pledges to use the best and most accepted methods and technologies to insure [sic] your personal information is safe and secure

In addition, the agency pointed to practices its viewed as not providing reasonable security for personal information stored on a network, such as

  • Failing to implement “readily-available…low-cost protections,” against “well-known and reasonably foreseeable vulnerabilities,” such as “Structured Query Language” (“SQL”) injection, Cascading Style Sheets (“CSS”) and HTML injection, etc.
  • Storing personal information such as Social Security numbers and security questions and answers in clear, readable text
  • Using the SHA-1 hashing algorithm to protect passwords, a method deprecated by the National Institute of Standards and Technology in 2011
  • Failing to maintain a process for receiving and addressing security vulnerability reports from third-party researchers, academics, or other members of the public
  • Not implementing patch management policies and procedures to ensure the timely remediation of critical security vulnerabilities
  • Maintaining lax password policies that allows, for example, users to select the same word, including common dictionary words, as both the password and user ID
  • Storing personal information indefinitely on a network without a business need
  • Failing to log sufficient information to adequately assess cybersecurity events
  • Failing to comply with existing written security policies
  • Failing to reasonably respond to security incidents, including timely disclosure of security incidents
  • Not adequately assessing the extent of and remediate malware infections after learning that devices on the network were infected with malware

The above list (including the additional items listed in the Complaint and the Consent Order) provide valuable insights into what measures the FTC might expect be in place to secure personal information.

The FTC also scrutinized the merchant’s disclosures on its website concerning the EU-U.S. Privacy Shield, alleging it failed to comply with some of the representations made in those disclosures. This aspect of the FTC’s enforcement action is notable because the agency acknowledged that the Privacy Shield had been invalidated by a decision of the European Court of Justice on July 16, 2020. But the FTC made clear that even if the Privacy Shield was determined to be insufficient under GDPR to permit the lawful transfer of personal data from the EU to the U.S., the merchant nonetheless represented that it would comply with the provisions of that framework.

The agreement reached in the Consent Order requires the merchant to take several steps, such as:

  • WISP. Within 60 days of the order, establish and implement a comprehensive written information security program (WISP) that protects the privacy, security, confidentiality, and integrity of personal information. To meet this requirement, the merchant must, among other things, (i) provide the WISP to its board or senior management every 12 months and not more than 30 days after a security incident, (ii) implement a range of specific safeguards and controls such as encryption, MFA, annual training, etc., (iii) consult with third-party experts concerning the WISP, and (iv) evaluate the capability of third party service providers to safeguard personal information and contractually require them to do so.
  • Independent WISP Assessment. The merchant must obtain independent third-party assessments of its WISP. The reporting period for these assessments is the first 180 days after the Consent Order, and each two-year period for 20 years following the Order.

To help survive FTC scrutiny, it is not enough to maintain reasonable safeguards to protect personal information. Companies also must ensure the statements that they make about those safeguards are consistent with the practices that they maintain. This includes statements in website privacy policies, customer receipts, and other correspondence. Additionally, companies must fully investigate inappropriately respond to potential security incidents that may have caused or could lead to in the future unauthorized access or acquisition of personal information.

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Photo of Joseph J. Lazzarotti Joseph J. Lazzarotti

Joseph J. Lazzarotti is a principal in the Berkeley Heights, New Jersey, office of Jackson Lewis P.C. He founded and currently co-leads the firm’s Privacy, Data and Cybersecurity practice group, edits the firm’s Privacy Blog, and is a Certified Information Privacy Professional (CIPP)…

Joseph J. Lazzarotti is a principal in the Berkeley Heights, New Jersey, office of Jackson Lewis P.C. He founded and currently co-leads the firm’s Privacy, Data and Cybersecurity practice group, edits the firm’s Privacy Blog, and is a Certified Information Privacy Professional (CIPP) with the International Association of Privacy Professionals. Trained as an employee benefits lawyer, focused on compliance, Joe also is a member of the firm’s Employee Benefits practice group.

In short, his practice focuses on the matrix of laws governing the privacy, security, and management of data, as well as the impact and regulation of social media. He also counsels companies on compliance, fiduciary, taxation, and administrative matters with respect to employee benefit plans.

Privacy and cybersecurity experience – Joe counsels multinational, national and regional companies in all industries on the broad array of laws, regulations, best practices, and preventive safeguards. The following are examples of areas of focus in his practice:

  • Advising health care providers, business associates, and group health plan sponsors concerning HIPAA/HITECH compliance, including risk assessments, policies and procedures, incident response plan development, vendor assessment and management programs, and training.
  • Coached hundreds of companies through the investigation, remediation, notification, and overall response to data breaches of all kinds – PHI, PII, payment card, etc.
  • Helping organizations address questions about the application, implementation, and overall compliance with European Union’s General Data Protection Regulation (GDPR) and, in particular, its implications in the U.S., together with preparing for the California Consumer Privacy Act.
  • Working with organizations to develop and implement video, audio, and data-driven monitoring and surveillance programs. For instance, in the transportation and related industries, Joe has worked with numerous clients on fleet management programs involving the use of telematics, dash-cams, event data recorders (EDR), and related technologies. He also has advised many clients in the use of biometrics including with regard to consent, data security, and retention issues under BIPA and other laws.
  • Assisting clients with growing state data security mandates to safeguard personal information, including steering clients through detailed risk assessments and converting those assessments into practical “best practice” risk management solutions, including written information security programs (WISPs). Related work includes compliance advice concerning FTC Act, Regulation S-P, GLBA, and New York Reg. 500.
  • Advising clients about best practices for electronic communications, including in social media, as well as when communicating under a “bring your own device” (BYOD) or “company owned personally enabled device” (COPE) environment.
  • Conducting various levels of privacy and data security training for executives and employees
  • Supports organizations through mergers, acquisitions, and reorganizations with regard to the handling of employee and customer data, and the safeguarding of that data during the transaction.
  • Representing organizations in matters involving inquiries into privacy and data security compliance before federal and state agencies including the HHS Office of Civil Rights, Federal Trade Commission, and various state Attorneys General.

Benefits counseling experience – Joe’s work in the benefits counseling area covers many areas of employee benefits law. Below are some examples of that work:

  • As part of the Firm’s Health Care Reform Team, he advises employers and plan sponsors regarding the establishment, administration and operation of fully insured and self-funded health and welfare plans to comply with ERISA, IRC, ACA/PPACA, HIPAA, COBRA, ADA, GINA, and other related laws.
  • Guiding clients through the selection of plan service providers, along with negotiating service agreements with vendors to address plan compliance and operations, while leveraging data security experience to ensure plan data is safeguarded.
  • Counsels plan sponsors on day-to-day compliance and administrative issues affecting plans.
  • Assists in the design and drafting of benefit plan documents, including severance and fringe benefit plans.
  • Advises plan sponsors concerning employee benefit plan operation, administration and correcting errors in operation.

Joe speaks and writes regularly on current employee benefits and data privacy and cybersecurity topics and his work has been published in leading business and legal journals and media outlets, such as The Washington Post, Inside Counsel, Bloomberg, The National Law Journal, Financial Times, Business Insurance, HR Magazine and NPR, as well as the ABA Journal, The American Lawyer, Law360, Bender’s Labor and Employment Bulletin, the Australian Privacy Law Bulletin and the Privacy, and Data Security Law Journal.

Joe served as a judicial law clerk for the Honorable Laura Denvir Stith on the Missouri Court of Appeals.