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FTC, CFPB, DOJ File Brief in Suit Challenging FCRA Constitutionality
On May 8, the FTC announced that it had joined the CFPB and the DOJ to file a brief supporting the constitutionality of the Fair Credit Reporting Act (FCRA). The brief was filed in a lawsuit in the U.S. District Court for the Eastern District of Pennsylvania in which a consumer alleged that a consumer reporting agency (CRA) violated FCRA by reporting on arrest records that were more than seven years’ old. Responding to these allegations, the CRA argued that the Supreme Court’s decision in Sorell v. IMS Health, Inc., 131 S. Ct. 2653 (2011), rendered FCRA’s seven-year limitation unconstitutional under the First Amendment. The federal entities’ brief counters that Sorell does not alter the test for commercial speech restrictions established in Central Hudson Gas and Electric Corp. v. Public Service Commission of New York, 447 U.S. 557 (1980). It goes on to argue that, under this test, the government has a substantial interest in protecting individuals’ privacy and that FCRA protects this interest while accommodating businesses’ competing interest in obtaining complete information about potential borrowers.
FTC Settles Privacy Claims Against Myspace
On May 8, the FTC announced an agreement with Myspace to settle government allegations that the social networking service misrepresented the protections offered by its privacy policy. The policy promised consumers that Myspace would not share users personally identifiable information or use that information for purposes inconsistent with those for which the information was submitted without first giving notice to users and receiving their permission. The FTC alleged that the privacy policy was deceptive because, without user notice or consent, Myspace provided advertisers with certain user information that allowed the advertisers to identify additional personal information. Under the terms of the settlement, Myspace must (i) establish a comprehensive privacy program, (ii) obtain biennial independent privacy program assessments, and (iii) avoid misrepresenting the scope of its privacy policy protections.
Key Considerations in Drafting Mobile Disclosures
Recent developments at the FTC and CFPB provide some guidance on how regulators may approach disclosures on smartphones and other mobile devices.
The recent CFPB Remittance Rule on international remittance transfers indicates some flexibility in the provision of disclosures in the remittances context via a mobile device. Additionally, the FTC’s recent report on best practices in consumer data privacy notes the difficulty in providing privacy notices on the smaller screens of mobile devices and encourages shorter, more effective privacy policies as a result.
These developments raise a series of questions for corporate counsel to consider when advising on the drafting and delivery of mobile disclosures. Specifically, questions include:
- Is the length of the mobile disclosure document as brief and succinct as it can be? Does it use concrete, everyday words and the active voice? Do the disclosures avoid multiple negatives, technical jargon and ambiguous language?
- Are the mobile disclosures presented in a logical sequence? Are they laid out in clear, concise sentences, paragraphs and sections? Are they placed in equal prominence to each other, absent any other specific regulatory format or placement requirements? Is the content placed on a particular page appropriate for the sizing of the page on the mobile screen? If not, are textual or visual cues used to encourage scrolling?
- Does the mobile disclosure "call attention to itself?" Is it on a screen the mobile user must access or will likely access frequently? If not, is it behind a hyperlink on an introductory screen that is clearly labeled so as to convey the importance of the linked disclosure? Is it presented with a clear, visible heading and an easy-to-read typeface and typesize?
- Have various technical and other applicable industry standards been consulted in the process of designing, developing and displaying mobile disclosures?
Washington Federal Court Allows Data Privacy Case Against IMDb to Proceed
On March 28, the U.S. District Court for the Western District of Washington held that actress Huong Hoang’s lawsuit against website IMDb.com pled sufficient facts to move forward on her breach of contract and Washington Consumer Protection Act claims, based in part on the website’s privacy policy. Hoang v. Amazon.com, Inc., No. C11-1709MJP (W.D. Wash. Mar. 28, 2012). IMDb, a subsidiary of Amazon, moved to dismiss Ms. Hoang’s four claims. Although two claims were dismissed, the court found that the defendant did not show that Ms. Hoang gave IMDb permission to use her information provided when subscribing to the website to search public records for additional information about her. Plaintiff pointed to a statement in the IMDb privacy policy that it would “carefully and sensibly” manage how information about customers is used and shared, and that “[y]ou can choose not to provide certain information….” Plaintiff alleges that IMDb used the personal information she provided, including credit card information, to locate her date of birth, among other things. Ms. Hoang alleged that IMDb then added her date of birth and age to its website, causing her to lose roles and decrease her earnings. Defendant’s motion to dismiss the remaining claims was denied.
Supreme Court Holds Only Pecuniary Damages Available Under Federal Privacy Act
On March 28, the U.S. Supreme Court ruled 5-3 that the Privacy Act of 1974, which regulates how federal agencies handle personal information, does not unequivocally authorize damages for mental or emotional distress. Cooper v. FAA, No. 10-1024, 2012 WL 1019969 (U.S. Mar. 28, 2012). In this case, an airline pilot sued the Federal Aviation Administration (FAA) and other federal agencies for impermissibly exchanging information about his HIV status in connection with a criminal investigation. The pilot claimed to suffer emotional and mental distress due to the disclosure. The U.S. Court of Appeals for the Ninth Circuit held that the term actual damages in the Privacy Act is not ambiguous and includes damages for mental and emotional distress. The Supreme Court reversed, holding, as the district court originally held, that the term is ambiguous and therefore does not waive the governments sovereign immunity from liability for nonpecuniary damages. The narrow ruling only directly impacts actions under the Privacy Act, and the court notes that actual damages can mean different things in different contexts. As such, the holding does not invalidate prior lower court rulings that actual damages under other statutes, including the Fair Credit Reporting Act and the Fair Housing Act, can include damages for emotional or mental distress.
FTC Finalizes Consumer Privacy Recommendations, Notes Mobile Issues
On March 26, the FTC released an anticipated report on consumer privacy, calling on all companies to adopt certain practices to protect consumers’ private information. The final report outlines three basic principles: (i) “privacy by design”, (ii) simplified choice, and (iii) increased transparency. Though the report and recommended practices do not carry the force of law, the FTC encourages adoption of the recommendations to support innovation and commerce while improving consumer protection. The report also serves as a blueprint for what the FTC is seeking in federal privacy legislation. Pending congressional action, the FTC will continue to employ its existing enforcement authority to address unfair or deceptive practices, including practices that violate self-regulatory programs. Further, the FTC intends to support implementation of the framework by focusing on several substantive topics and stakeholder groups, including (i) do not track, (ii) mobile services, (iii) data brokers, (iv) large platform providers, and (v) industry codes of conduct. For example, the FTC will focus on mobile services by updating guidance about online advertising disclosures, including holding a workshop on model mobile disclosures on May 30, 2012. It also calls on mobile service providers to establish industry standards that address data collection, transfer, use, and disposal, particularly for location data.
First Circuit Upholds Dismissal of Claims Against Third-Party for Failure to Protect Personal Information
On February 28, the U.S. Court of Appeals for the First Circuit upheld the dismissal of a putative class action brought against a securities clearing company for alleged failures to protect certain personal information. Katz v. Pershing, LLC, No. 11-1983, 2012 WL 612793 (1st Cir. Feb. 28, 2012). In this case, the plaintiff was the customer of a brokerage firm that used defendant Pershing LLC’s online clearing system, but the customer had no direct relationship with the defendant. The plaintiff alleged that Pershing had contractual and statutory obligations to encrypt and protect the personal information of brokerage firm customers. Specifically, the plaintiff alleged various contract claims, including one that Pershing’s failures constituted a breach of its contract with the brokerage. She also claimed that Pershing violated Massachusetts consumer protection laws. The First Circuit upheld the district court’s dismissal, holding that the agreement between the brokerage and the defendant clearing firm did not confer any benefits on the plaintiff – the brokerage’s customer. The court stated that the separate contractual agreements between the plaintiff and her brokerage on the one hand, and between the brokerage and the defendant clearing firm on the other, could not be mixed and matched. The court also held, with regard to claims that Pershing violated the state data protection law, that plaintiff’s claims of potential harm from unprotected data were purely theoretical and “simply do[] not rise to the level of a reasonably impending threat.” As such plaintiff lacked standing to bring the statutory claims. Because the court found that the plaintiff lacked standing, it did not reach the issue of whether the Massachusetts data privacy law provides a private right of action.
California Class Action Suits Allege Mislabeled Privacy Policy Links
In the last three months, five class action cases filed in California under the state’s “Shine a Light” statute have alleged that online businesses, including Microsoft Corp., CBS Interactive Inc., and Time Inc., failed to properly label links to their privacy policies. The five suits, all filed by a single firm, claim $3,000 per violation plus additional damages (Boorstein v. CBS Interactive Inc., Cal. Super. Ct., No. 476015, complaint filed 12/28/11; Boorstein v. Men's Journal LLC, Cal. Super. Ct., No. 475697, complaint filed 12/22/11; Miller v. Hearst Communications, C.D. Cal., No. 12-733, complaint filed 1/27/12; Murray v. Time Inc., N.D. Cal., No. 12–431, notice of removal filed 1/26/12; Smith v. Microsoft Corp., Cal. Super. Ct., No. 476413, complaint filed 1/9/12). The "Shine a Light" statute, in effect since 2005, requires businesses that collect California residents’ personal data and then share that data for marketing purposes to disclose or allow consumers to opt out of that sharing. Each defendant company allegedly mislabeled links to their online privacy policies or otherwise failed to meet the statute’s requirements.
California AG and Mobile Platforms Agree to Require Privacy Policies for Apps
On February 22, California Attorney General Kamala Harris announced an agreement with six leading mobile platform companies to ensure that apps on those platforms have privacy policies. Privacy policies are already required under the California Online Privacy Protection Act, which governs commercial websites and online services that collect personal data from California residents. The new agreement also includes commitments from the six companies - Amazon, Apple, Google, Hewlett-Packard, Microsoft, and Research in Motion - to educate app developers about user privacy obligations.
White House Privacy Report Pushes for New Laws and Industry Self-Regulation
On February 23, the White House released a report on consumer privacy, setting out a Consumer Privacy Bill of Rights. The proposed Bill of Rights consists of seven broad principles, including individual control, security, and transparency of data use. The report asks Congress to codify the recommendations as a statute enforceable by the Federal Trade Commission, and identifies FTC enforcement as critical to ensuring privacy protections. Pending or absent congressional action, the report promises that the administration will work with the private sector to adopt new protections on voluntary basis. The administration will hold stakeholder forums to develop legally enforceable codes of conduct. Finally, the report addresses the need for international interoperability and coordination of enforcement.