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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.
FTC Releases Survey on Consumer Reporting Agencies and FACTA
On March 12, the FTC released the results of a survey conducted to gauge consumer experiences in dealing with consumer reporting agencies (CRAs) following an identity theft. While the survey indicates that the majority of consumers were satisfied with their experiences, many consumers were unaware of their rights under the Fair and Accurate Credit Transactions Act (FACTA) before contacting a CRA. In response to concerns raised by consumers in the survey, the report recommends that (i) CRAs make it easier for consumers to reach a live person and (ii) the CFPB use its examination and rulemaking authority, and the FTC employ its enforcement authority, to address CRAs’ practice of attempting to sell identity theft products to consumers reporting identify thefts.
Facebook's Forum-Selection Clause Enforceable Against Plaintiff Minors
On March 8, the U.S. District Court for the Southern District of Illinois ruled that minors who used Facebook are bound by the forum-selection clause contained in the website’s terms of service, to which they agreed when they signed up for Facebook. E.K.D. v. Facebook Inc., No. 11-461 (S.D. Ill. Mar. 8, 2012). The plaintiffs, a group of minors suing Facebook for improperly using their images in advertising, argued that because they were minors when they signed up, the forum selection clause could not be enforced. The court rejected this argument, holding that under California contract law the minor plaintiffs could not void the forum selection because they continued to use and benefit from Facebook after agreeing to the terms of service. The court further held that transferring the case to the Northern District of California would not unduly burden the plaintiffs and was permitted by 28 U.S.C § 1404.
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.
SEC and CFTC Propose Rules Regarding Detecting Identity Theft
On February 28, the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC, together with the SEC, the Commissions) jointly issued proposed rules that would require entities subject to the Commissions’ jurisdiction to address identity theft in two ways: (i) financial institutions and creditors would be required to develop and implement a written identity theft prevention program designed to detect, prevent, and mitigate identify theft with either certain existing accounts or opening new accounts, and (ii) credit and debit card issuers subject to the Commissions’ jurisdiction would be required to assess the validity of change-of-address notifications under certain circumstances. Section 1088 of the Dodd-Frank Act transferred authority over certain parts of the Fair Credit Reporting Act from the Federal Trade Commission to the Commissions for entities they regulate. The Commissions’ proposed rules are substantially similar to rules adopted in 2007 by the FTC and other federal financial regulatory agencies that previously were required to adopt such rules. The proposed rules set out the four elements that regulated entities would be required to include in their identify theft prevention programs: (i) identify relevant red flags, (ii) detect the occurrence of red flags, (iii) respond appropriately to the detected red flags, and (iv) periodically update the program to reflect changes in risks to customers or to the safety and soundness of the financial institution or creditor from identity theft. The Commissions issued jointly proposed guidelines in an appendix to the proposed rules to assist regulated entities in formulating and maintaining a Program that would satisfy the proposed rule requirements. The Commissions are accepting comments on the proposal through May 7, 2012.
European Banking Authority Expresses Concerns Regarding New Financial Sector Domain Names
On February 23, the European Banking Authority (EBA) released a letter it sent to the ICANN Board of Directors expressing concerns about ICANN’s June 2011 approval of a new program to allow additional generic top level domains, including “.bank” and “.fin”. The new domain names are expected to be available for use later this year. As the European umbrella organization comprised of the heads of each member state’s consumer credit regulator, the EBA is broadly tasked with European consumer financial protection. From that standpoint, the letter and an attached comment document ask ICANN to halt the use of the new domain names because they have the potential to increase consumer fraud and decrease data security. Further, the new names may require financial institutions to implement costly and complex legal and commercial initiatives to protect their trademarks from fraud. The EBA does not believe that ICANN’s proposals to mitigate these concerns, including a proposed new registration system for the domain names, are insufficient.
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.
NIST Publishes Recommendations for Establishing Governance Structure for Implementation of National Trusted Identities Strategy
On February 7, the National Institute of Standards and Technology (NIST) published a report with recommendations for developing a governance system to implement the National Strategy for Trusted Identities in Cyberspace (NSTIC). The NSTIC directs the federal government to work with private sector stakeholders to establish and maintain an identity ecosystem for internet transactions aimed at promoting trust, privacy, and security. The report summarizes comments received in response to a June 2011 Notice of Inquiry (NOI) that sought public input regarding the establishment and structure of a private sector-led steering group to implement the NSTIC. Based on those comments, stakeholder workshops, and best practices from similar governance efforts, the report presents recommendations in four areas: (i) steering group initiation, (ii) steering group structure, (iii) stakeholder representation, and (iv) international coordination. The report also includes a recommended charter to establish the steering group and notes that, subject to public comment and finalization of the approach outlined in the report, NIST intends to initiate a competitive grant program to fund a secretariat responsible for convening the initial steering group.