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District Court dismisses state law claims concerning scanned email allegations
On April 26, the U.S District Court for the Northern District of California granted a defendant tech company’s motion for reconsideration to dismiss a plaintiffs’ Washington Privacy Act (WPA) claims that it shared customer data with third parties without first obtaining consent. According to the amended complaint, the defendant allegedly misrepresented its privacy and security practices in violation of federal and state law by, among other things, sharing customer data with unauthorized third parties (some of which suffered data breaches), using customer data to develop products and services to sell to other companies, and falsely promising it complied with privacy and confidentiality standards. Plaintiffs alleged the company scanned 400 billion customer emails to obtain insights for its API, which it then sold to others.
In its prior ruling, the court dismissed plaintiffs’ Wiretap Act and Stored Communications Act claims but allowed the WPA claims to proceed. The defendant then filed a motion for partial reconsideration, arguing that the WPA claim is also premised on the same scanned email theory as with the other two claims that were already dismissed. The court agreed that the plaintiffs failed to sufficiently allege that their emails were scanned and dismissed the WPA claims without leave to amend because the “interception or disclosure of a communication” was necessary “in order for the conduct to be actionable.”
District Court allows state claims concerning the use of individuals’ likenesses in online ads to proceed
On April 19, the U.S. District Court for the Northern District of California denied a motion to dismiss in a putative class action alleging a California-based website operator violated various Ohio, Indiana, and California state laws by appropriating individuals’ names and likenesses and using this information in online teaser profile advertisements. Plaintiffs contended that the “teasers” violated their rights of publicity, and that memberships give users access to data including location history, family members, court records, employment information, and more. Plaintiffs further stated that “they ‘did not consent to the commercial use of their personal information and personas to promote subscriptions to a website with which they have no relationship.’” Defendant moved to dismiss on numerous grounds, including lack of standing.
In denying the motion to dismiss, the court ruled that plaintiffs have Article III standing to sue and that plaintiffs sufficiently pleaded a cognizable injury in “that their names, likenesses, and related information have commercial value and were being used for a commercial purpose.” The court also reviewed the adequacy of pleadings with respect to the alleged state violations and concluded, among other things, that the defendant’s teasers “are not subject to statutory exceptions for newsworthiness or public interest information.” As to the defendant’s alleged violations of California’s Unfair Competition Law (UCL), the court considered whether the California Consumer Privacy Act (CCPA) “immunizes [defendant’s] behavior from UCL liability.” According to the defendant, the CCPA generally obligates businesses to notify California residents when personal information is being used, it also “contains an express exemption for the use of publicly available data.” Because this conduct is allegedly permitted by the CCPA, the defendant argued, it cannot violate the UCL. The court disagreed, writing that “all that these provisions of the CCPA do are exempt publicly available data from special notification and disclosure rules that the statute itself imposes on companies that collect Californians’ data. . . . They do not expressly or impliedly set aside privacy-based tort claims or related UCL claims.”
District Court approves final $85 million class action privacy settlement despite objections
On April 21, the U.S. District Court for the Northern District of California granted final approval of an $85 million class action settlement resolving privacy and data security allegations against a video conferencing provider. As previously covered by InfoBytes, consolidated class members claimed the company violated several California laws, including invasion of privacy, the “unlawful” and “unfair” prongs under the Unfair Competition Law, implied covenant of good faith and fair dealing, and unjust enrichment, among others. According to the more than 150 million class members (defined as individuals who “registered, used, opened or downloaded the [company’s] [m]eetings [a]pplication”), the company unlawfully shared their personal data with unauthorized third parties, failed to prevent unwanted and unauthorized meeting disruptions, and misrepresented the strength of its end-to-end encryption measures. Under the terms of the final settlement, the company will establish an $85 million fund to pay valid claims, fees and expenses, service payments, and taxes, and will make several major changes to its practices to “improve meeting security, bolster privacy disclosures, and safeguard consumer data.” Among other things, the settlement stipulates that the company will “provide in-meeting notifications to make it easier for users to understand who can see, save and share [their] information and content by alerting users when a meeting host or another participant uses a third-party application during a meeting.” Additionally, the company will educate users about available security features and ensure its privacy statement discloses the ability of users to share user data with third parties through integrated third-party software, record meetings, and/or transcribe meetings.
The court considered several objections raised by certain class members, including concerns argued on behalf of a subclass of users who used the meeting application “as part of a business that was legally or contractually required to maintain client confidentiality as part of the services the business provided.” According to these objectors, the individual payment amounts are inadequate for individuals who held sensitive meetings. The court countered that the objectors’ claims did not differ from other class members and that the recovery is intended to cover users who did not receive the benefit of their bargain with the company, and not for “special harm arising from a duty to maintain client confidentiality.”
District Court denies class cert in data breach suit
On April 20, the U.S. District Court for the Northern District of California denied plaintiffs’ motion for class certification in a lawsuit alleging a defendant hotel and restaurant group breached its contract when a data breach exposed the plaintiffs’ credit card account numbers and other private information. Plaintiffs alleged the defendant contracted with a third-party reservation site, which required consumers to provide payment card information and other personally identifying information (PII). The plaintiffs contended that during the data breach, hackers accessed customer data, and argued that “had [the third party] ‘employed multiple levels of authentication,’ rather than ‘single factor authorization,’ the ‘hacker would not . . . have been able to access the system.” Plaintiffs further claimed that the defendant served as the third party’s agent and was therefore responsible for its conduct.
In declining to certify the class, the court ruled that the plaintiffs failed to successfully allege any of their three claims on behalf of the class. The court reviewed the plaintiffs’ breach of contract claims, which alleged that the defendant promised to safeguard class members’ PII but failed to provide notice on its website that a third party was processing the payment information. According to the court, the plaintiffs could not show that all of the proposed class members would have believed they were providing their information to the defendant because the defendant’s “Book Now” button sent the user to the third party’s website and the defendant’s privacy policy disclosed its use of third party websites. The court also rejected the plaintiffs’ assertion that the defendant disclosed personal information in violation of California Civil Code because the information was hacked rather than disclosed by either the defendant or the third party. With respect to the plaintiffs’ Texas Deceptive Trade Practices Act claims, the plaintiffs argued that the defendant’s statements about protective measures were misleading because the third party did not employ multi-layer authentication. The court concluded that class treatment of those claims was improper as it could not determine whether the practice was misleading for the entire class as the question is dependent on whether class members believed they were providing PII to the defendant or to the third party.
Defendants to pay $5 million for alleged data breach
On April 20, the U.S. District Court for the Southern District of California granted preliminary approval of a proposed class settlement, resolving claims against a medical supplier company after a data breach allegedly compromised personal information of its consumers in its database. According to the order, the plaintiffs’ alleged that between April 2019 and June 2019, hackers gained access to the defendant’s computer systems, which contained personal identifying information and protected health information of tens of thousands of individuals. Under the terms of the settlement, the defendants will pay $5 million, where each class member with a valid claim will receive between $100-$1000 in cash. The settlement also includes $2.3 million in attorneys’ fees and up to $4,000 for each of the class representatives. Additionally, the defendants will “be required to perform specified remedial measures for a minimum of the next two years and ‘perform either improved versions of such recommendations or the new industry standard thereafter for at least three additional years.’” The remedial measures include, among other things, conducting an AICPA and SOC Type 2 audit to be repeated until the defendant passes, engaging an independent third party to perform a HIPAA IT assessment, undergoing at least one cyber incident response test per year starting in 2022, requiring staff trainings about security and privacy at least twice a year, engaging a company to test its phishing and external facing vulnerabilities at least twice a year, and deploying a third-party enterprise SIEM tool with a 400-day look-back on logs.
CRS report raises privacy concerns regarding digital wallets
On April 18, the Congressional Research Service released an overview of digital wallet technology and related cybersecurity, data privacy and consumer protection policy considerations. Digital wallets are software applications that store payment or account details to facilitate traditional payments using bank and credit card details, and also cover transfers from consumers’ bank accounts to retailers and peer-to-peer and cryptocurrency transactions. One issue the report identified is that companies that offer digital wallets and payment companies often collect information about users and may share data with affiliates and nonaffiliates unless users opt out. As previously covered by InfoBytes, the CFPB is developing proposed rulemaking around sharing consumer financial data, but it remains unclear whether the rules would apply to digital wallet companies. The report also stressed that because funds stored on digital wallets are not deposits, digital wallets are generally not covered by deposit insurance. And while credit, debit, or prepaid cards stored on a mobile wallet are covered by the EFTA and TILA (and implementing Regulations E and Z), those statutes do not currently cover cryptocurrency wallets. The report explained that “[c]ryptocurrency transactions are not subject to Regulation E primarily because these are not bank products and also because cryptocurrencies are not typically used for consumer payments.”
District Court denies motion for corrective notice in class action data breach case
On April 18, the U.S. District Court for the District of South Carolina denied the plaintiffs’ motion for corrective notice in a putative class action, ruling that the defendant cloud computer service provider is not required to issue a corrective notice related to a 2020 data breach. In 2020, a data breach exposed the personal data of individuals whose information was managed by the defendant and provided to the defendant’s clients. The plaintiffs alleged that the defendant’s “deficient” security program led to the data breach, and that the defendant failed to implement security measures to mitigate the risk of unauthorized access, used outdated servers, stored obsolete data, and maintained unencrypted data fields. The judicial panel on multidistrict litigation eventually consolidated several putative class actions arising from the data breach for coordinated pretrial proceedings. Plaintiffs argued that corrective notice to customers was appropriate, claiming the defendant “made numerous misrepresentations” related to the type of data stolen and performed “an unreliable risk of harm analysis that did not actually take into account the harm class members faced as a result of the breach.” The court disagreed, ruling that such corrective notice is improper at this stage. “Ultimately, the Federal Rules of Civil Procedure do not authorize Plaintiffs’ request to widely disseminate a notice endorsing their position on dispositive issues to [Defendant’s] customers, who are not parties or putative class members in this case, where Plaintiffs have not shown that [Defendant] made misleading communications regarding this litigation,” the court ruled.
9th Circuit: Networking site cannot deny data scraping access to publicly available profiles
On April 18, on remand from the U.S. Supreme Court, the U.S. Court of Appeals for the Ninth Circuit affirmed a district court’s order preliminarily enjoining a professional networking site from denying a data analytics company access to publicly available member profiles. At issue are allegations brought by the networking site claiming the data analytics company used automated bots to extract user data from the networking site’s website (a process known as “scraping”) for the purposes of selling its analytics services to businesses. The networking site sent the data analytics company a cease-and-desist letter, asserting violations of state and federal law, including the Computer Fraud and Abuse Act (CFAA). The data analytics company responded that it had a right to access the public pages and later sought a preliminary injunction. In granting the preliminary injunction, the district court ordered the networking site to, among other things, “remove any existing technical barriers to [its] public profiles, and to refrain from putting in place any legal or technical measures” that would block access.
The 9th Circuit previously affirmed the preliminary injunction, but was called to further consider whether the CFAA applies to the data analytics company’s data scraping after the U.S. Supreme Court vacated the appellate court’s judgment in light of its ruling in Van Buren v. United States.
On remand, the appellate court reviewed whether the data analytics company accessed data “without authorization” in violation of the CFAA after it received the cease-and-desist letter. The 9th Circuit found that the ruling in Van Buren, in which the Supreme Court suggested that the CFAA only applies in cases where someone is accused of hacking into or exceeding their authorized access to a network that is protected, or in situations where the “gates are up,” narrowed the CFAA’s scope and most likely did not apply to cases involving data scraped in bulk by automated bots from public websites. “A defining feature of public websites is that their publicly available sections lack limitations on access; instead, those sections are open to anyone with a web browser,” the appellate court wrote. “In other words, applying the ‘gates’ analogy to a computer hosting publicly available webpages, that computer has erected no gates to lift or lower in the first place.” Therefore, the court held, the phrase “without authorization” does not apply to public websites.
In determining that a preliminary injunction was appropriate, the appellate court held that the district court did not abuse its discretion in concluding that the data analytics company met the standard of establishing that the plaintiff is likely to succeed on the merits, is likely to suffer irreparable harm without such relief, that the “balance of equities” is in the favor of the plaintiff, and that the injunction would be in the public interest. The court found that the data analytics company showed that it “currently has no viable way to remain in business other than using [the networking site’s] public profile data” for its analytic services and “demonstrated a likelihood of irreparable harm absent a preliminary injunction.” In considering the balance of hardships, the 9th Circuit agreed that the scales “tipped sharply” in favor of the data analytics company “when weighing the likelihood that [the data analytics company] would go out of business against [the networking site’s] assertion that an injunction threatened its members’ privacy” and therefore risked the goodwill it had developed with its members. Finally, the court rejected the networking site’s claims that the data analytics company violated the CFAA, which would have preempted the remaining state law claims.
Colorado seeks comments on privacy rulemaking; draft regulations to come this fall
Recently, the Colorado attorney general released pre-rulemaking considerations for the Colorado Privacy Act (CPA). The considerations seek informal public input on any area of the CPA, including those “that need clarification, consumer concerns, anticipated compliance challenges, impacts of the CPA on business or other operations, cost concerns, and any underlying or related research or analyses.” As covered by a Buckley Special Alert, the CPA was enacted last July to establish a framework for personal data privacy rights and provides consumers with numerous rights, including the right to access their personal data, opt-out of certain uses of personal data, make corrections to personal data, request deletion of personal data, and obtain a copy of personal data in a portable format. The CPA is effective July 1, 2023 with certain opt-out provisions taking effect July 1, 2024. Under the CPA, the AG has enforcement authority for the law, which does not have a private right of action. The AG also has authority to promulgate rules to carry out the requirements of the CPA and issue interpretive guidance and opinion letters. Finally, the AG has authority to develop technical specifications for at least one universal opt-out mechanism.
The AG’s office stated that it plans to adopt a principle-based model for the state’s rulemaking approach rather than a prescriptive one, and outlined five principles intended to help implement the CPA:
- rules should protect consumers and help consumers understand and exercise their rights;
- rules should clarify ambiguities as necessary to promote compliance and minimize unnecessary disputes;
- rules should facilitate efficient and expeditious compliance by ensuring processes are simple and straightforward for consumers, controllers and processors, and enforcement agencies;
- rules should facilitate interoperability and allow the CPA to function alongside protections and obligations created by other state, national, and international frameworks; and
- rules should not be unduly burdensome so to as to prevent the development of adaptive solutions to address challenges presented by advances in technology.
The pre-rulemaking considerations laid out several questions for input related to topics addressing universal opt-out mechanisms, consent for processing consumer data in specific circumstances, dark patterns, data protection assessments that screen for heightened risk of harm, the effects of profiling on consumers, opinion letters and interpretive guidance, offline and off-web data collection, and differences and similarities between the CPA and laws in other jurisdictions. A formal notice of rulemaking and accompanying draft regulations will be issued this fall. Comments may be submitted through the AG’s portal here.
Virginia enacts additional consumer data protections
On April 11, the Virginia governor signed legislation enacting additional amendments to the Virginia Consumer Data Protection Act (VCDPA). Both bills take effect July 1.
HB 714 (identical bill SB 534) expands the definition of a nonprofit organization to include political and certain tax-exempt 501(c)(4) organizations, thus exempting them from the VCDPA’s provisions. The bill also abolishes the Consumer Privacy Fund and provides that all civil penalties, expenses, and attorney fees collected from enforcement of the VCDPA shall be deposited into the Regulatory, Consumer Advocacy, Litigation, and Enforcement Revolving Trust Fund. Under Section 59.1-584, the attorney general has exclusive authority to enforce the law and seek penalties of no more than $7,500 per violation should a controller or processor of consumer personal data continue to violate the VCDPA following a 30-day cure period, or breach an express written statement provided to the attorney general that the alleged violations have been cured.
HB 381 amends VCDPA provisions related to consumers’ data deletion requests. Specifically, the amendment provides that a controller that has obtained a consumer’s personal data from a third party “shall be deemed in compliance with a consumer’s request to delete such data . . . by either (i) retaining a record of the deletion request and the minimum data necessary for the purpose of ensuring the consumer’s personal data remains deleted from the business’s records and not using such retained data for any other purpose . . . or (ii) opting the consumer out of the processing of such personal data for any purpose except for those exempted pursuant” to the VCDPA.
As previously covered by InfoBytes, the VCDPA was enacted last year to establish a framework for controlling and processing consumers’ personal data in the Commonwealth. The VCDPA, which explicitly prohibits a private right of action, allows consumers to access their personal data; make corrections; request deletion of their data; obtain a copy of their data in a portable format; and opt out of targeted advertising, sale of their data, or “profiling in furtherance of decisions that produce legal or similarly significant effects concerning the consumer.”