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  • District Court preliminarily approves $2.35 million settlement for card data breach

    Privacy, Cyber Risk & Data Security

    On November 8, the U.S. District Court for the Northern District of Texas issued an order accepting a magistrate judge’s report preliminarily approving a consolidated class action settlement related to a restaurant chain’s payment card data breach. Class members alleged that hackers gained unauthorized access to the restaurant chain’s computer servers and payment card environment between April 2019 and October 2020, resulting in hundreds of thousands of consumers’ financial information, including credit and debit card numbers, expiration dates, cardholder names, and internal card verification codes, being compromised. Hackers then allegedly advertised the stolen information for sale on the dark web. Several lawsuits were filed alleging violations of numerous state laws that were eventually consolidated with this action. The parties negotiated a settlement prior to class certification, which would require the restaurant chain to provide a $2.35 million all-cash non-reversionary qualified settlement fund and adopt several data-security measures. Class members also would be able to file claims for out-of-pocket losses, elect for a cash payments, and request credit monitoring services.

    The magistrate judge’s report recommended that the proposed class settlement be preliminarily approved as it “will likely be found fair at the final approval stage” and the offered relief “is both procedurally and substantively adequate.” The magistrate judge disagreed with objections raised by certain plaintiffs who argued, among other things, “that the proposed settlement is ‘substantively inadequate’ because the amount of funds available per potential class member is ‘far too low.’” However, according to the magistrate judge’s report, when compared to other settlements approved in other data breach cases, it is “clear that the proposed settlement is at least in line with if not better than what any proposed plaintiff could have expected coming into the litigation.” The magistrate judge also refuted the objecting plaintiffs’ assertion that the proposed settlement treats class members differently by providing plaintiffs who can establish out-of-pocket losses with up to $5,000, California residents without losses with $100, and non-California residents without losses with $50. “The Settling Plaintiffs have adequately demonstrated why this extra recovery for California class members [is] equitable, if not equal. Namely, class members from California could bring California state law claims which provide for $100-$750 in statutory damages,” the report said, adding that “class members from California have a stronger basis for damages than do class members from outside the state—who may only be able to show nominal or incidental damages as a result of [the restaurant chain’s] breach of contract—and so their modestly increased recovery is justified.”

    Privacy, Cyber Risk & Data Security Courts Data Breach Consumer Protection Class Action Settlement State Issues California

  • District Court: Unclear when networking site became aware of data scraping

    Privacy, Cyber Risk & Data Security

    On November 3, the U.S. District Court for the Northern District of California issued an order ruling on cross-motions for summary judgment in an action concerning whether a now-defunct plaintiff data analytics company breached a user agreement with a defendant professional networking site by using an automated process to extract user data (a process known as “scraping”) for the purposes of selling its analytics services to businesses. The defendant claimed that the user agreement prohibits scraping, and sent the plaintiff a cease-and-desist letter demanding it stop and alleging violations of the Computer Fraud and Abuse Act (CFAA) as well as various state laws. In response, the plaintiff sued the defendant, arguing that it had a right to access the public pages, and later sought a preliminary injunction, which the district court granted.

    As previously covered by InfoBytes, earlier this year, the U.S. Court of Appeals for the Ninth Circuit, on remand from the U.S. Supreme Court, affirmed the district court’s order preliminarily enjoining the defendant from denying the plaintiff access to publicly available member profiles. The 9th Circuit had previously affirmed the preliminary injunction, but was called to further consider whether the CFAA applies to the plaintiff’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. The 9th Circuit found that the ruling in Van Buren, in which the Supreme Court suggested 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. The appellate court concluded, among other things, that the defendant 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.” Moreover, the 9th Circuit rejected the defendant’s claims that the plaintiff violated the CFAA.

    In partially granting the defendant’s motion and denying the plaintiff’s, the district court ruled that the plaintiff breached its user agreement by directing the creation of fake accounts and copying of url data as part of its scraping process. Nonetheless, the district court noted there remains a legitimate dispute over whether the defendant waived its right to enforce the user agreement after the plaintiff openly discussed its business model, including its reliance on scraping, at conferences it organized that were attended by defendant’s executives. Moreover, questions remain for trial as to when the defendant became aware of the plaintiff’s scaping, whether it should have taken “steps to legally enforce against known scraping” sooner, and whether the defendant can raise certain defenses to its breach of contract claim tied to the plaintiff’s data scraping and unauthorized use of data.

    Privacy, Cyber Risk & Data Security Courts Data Scraping Consumer Protection Computer Fraud and Abuse Act State Issues California Appellate Ninth Circuit

  • District Court preliminary approves $4.3 million data breach settlement

    Courts

    On November 4, the U.S. District Court for the Eastern District of Michigan granted preliminary approval of a $4.3 million class action settlement regarding a data breach, following the filing of the plaintiffs’ unopposed motion for preliminary approval of class action settlement. After a plaintiff consolidated her suit with other similar lawsuits, the plaintiff class sued the defendant for negligence, unjust enrichment, and breach of contract, alleging their personal information was stolen from the defendant during a malware attack due to lack of cybersecurity measures. The settlement provides for, among other things, three years of free credit-monitoring services for the plaintiff class, up to $2,500 per member to cover out-of-pocket expenses related to the breach, up to $80 per member to cover lost time remedying issues related to the breach, $75 per member for California residents for claims under state statutes, and a year of password-managing services. The plaintiffs are seeking service awards of $1,500 for each of the 15 representative plaintiffs. The motion also noted that class counsel will ask the court for just over $1.4 million in attorneys’ fees to be deducted from the settlement fund.

    Courts Privacy, Cyber Risk & Data Security Settlement Class Action State Issues

  • Pennsylvania amends privacy bill

    Privacy, Cyber Risk & Data Security

    On November 3, the Pennsylvania governor signed SB 696 to amend the Breach of Personal Information Notification Act. The bill, among other things, prohibits employees of the Commonwealth from using non-secured Internet connections. The bill also includes data storage policy provisions, which establish that an entity that maintains, stores, or manages computerized data on behalf of Pennsylvania that constitutes personal information must develop a policy to govern reasonably proper storage of the personal information. The bill further notes that a goal of the policy must be to reduce the risk of future breaches of the security of the system. The bill is effective 180 days after approval by the governor.

    Privacy, Cyber Risk & Data Security State Issues State Legislation Pennsylvania Data Breach

  • CPPA says comments on modified draft privacy rules due November 21

    Privacy, Cyber Risk & Data Security

    On November 3, the California Privacy Protection Agency (CPPA) Board officially posted updated draft rules for implementing the Consumer Privacy Rights Act of 2020, which amends and builds on the California Consumer Privacy Act of 2018. The draft rules were previously released in advance of a CPPA Board meeting held at the end of October (see previous InfoBytes coverage here for a detailed breakdown of the proposed changes). A few notable changes between the versions include:

    • A requirement that a business must treat an opt-out preference signal as a valid request to opt out of sale/sharing for not only that browser or device but also for “any consumer profile associated with that browser or device, including pseudonymous profiles.”
    • A requirement that if a business does not ask a consumer to affirm their intent with regard to a financial incentive program, “the business shall still process the opt-out preference signal as a valid request to opt-out of sale/sharing for that browser or devise and any consumer profile the business associates with that browser or device.” However if a consumer submits an opt-out of sale/sharing request but does not affirm their intent to withdraw from a financial incentive program, the business may ignore the opt-out preference signal with respect to the consumer’s participation in the financial incentive program.
    • The addition of the following provision: “As part of the Agency’s decision to pursue investigations of possible or alleged violations of the CCPA, the Agency may consider all facts it determines to be relevant, including the amount of time between the effective date of the statutory or regulatory requirement(s) and the possible or alleged violation(s) of those requirements, and good faith efforts to comply with those requirements.”

    Comments on the amended draft rules are due November 21 by 8 am PT.

    Privacy, Cyber Risk & Data Security State Issues CPPA CCPA CPRA Agency Rule-Making & Guidance Consumer Protection

  • FTC’s annual PrivacyCon focuses on consumer privacy and security issues

    Privacy, Cyber Risk & Data Security

    On November 1, the FTC held its annual PrivacyCon event, which hosted research presentations on a wide range of consumer privacy and security issues. Opening the event, FTC Chair Lina Khan stressed the importance of hearing from the academic community on topics related to a range of privacy issues that the FTC and other government bodies may miss. Khan emphasized that regulators cannot wait until new technologies fully emerge to think of ways to implement new laws for safeguarding consumers. “The FTC needs to be on top of this emerging industry now, before problematic business models have time to solidify,” Khan said, adding that the FTC is consistently working on privacy matters and is “prioritizing the use of creative ideas from academia in [its] bread-and-butter work” to craft better remedies to reflect what is actually happening. She highlighted a recent enforcement action taken against an online alcohol marketplace and its CEO for failing to take reasonable steps to prevent two major data breaches (covered by InfoBytes here). Khan noted that while the settlement’s requirements, such as imposing multi-factor authentication requirements and destroying unneeded user data, may not sound “very cutting-edge” they serve as a big step forward for government enforcers. Chief Technology Officer Stephanie Nguyen, who is responsible for leading the charge to integrate technologists across the FTC’s various lines of work, including consumer privacy, discussed the work of these technologists (including AI and security experts, software engineers, designers, and data scientists) to help develop remedies in data security-related enforcement actions and to push companies to not just do the minimum to remediate areas like unreasonable data security but to model best practices for the industry. “We want to see bad actors face real consequences,” Nguyen said, adding that the FTC wants to hold corporate leadership accountable as it did in the enforcement action Khan cited. Nguyen further stressed that there is also a need to address systemic risk by making companies delete illegally collected data and destroy any algorithms derived from the data.

    The one-day conference featured several panel sessions covering a number of topics related to consumer surveillance, automated decision-making systems, children’s privacy, devices that listen to users, augmented/virtual reality, interfaces and dark patterns, and advertising technology. Topics addressed during the panels include (i) requiring data brokers to provide accurate information; (ii) understanding how data inaccuracies can disproportionately affect minorities and those living in poverty, and why relying on this data can lead to discriminatory practices; (iii) examining bias and discrimination risks when engaging in emotional artificial intelligence; (iv) understanding automated decision making systems and how the quality of these systems impact populations they are meant to represent; (v) recognizing the lack of transparency related to children’s data collection and use, and the impact various privacy laws, including the Children’s Online Privacy Protection Rule, the General Data Protection Regulation, and the California Consumer Privacy Act, have on the collection/use/sharing of personal data; (vi) recognizing challenges related to cookie-consent interfaces and dark patterns; and (vii) examining how targeted online advertising both in the U.S. and abroad affects consumers.

    Privacy, Cyber Risk & Data Security FTC Consumer Protection Artificial Intelligence Dark Patterns Enforcement

  • Plaintiff wins $148,000 in data breach suit

    Courts

    On November 3, the U.S. District Court for the District of Minnesota granted a plaintiff technical consulting and software development company’s motion for summary judgment in a data breach suit. According to the order, an unknown bad actor gained unauthorized access to the email account of a plaintiff’s employee and created multiple “rules” that interfered with the proper receipt of incoming emails. The bad actor sent emails to and from the account, at times impersonating the employee and at times impersonating clients. The plaintiff issued two invoices to a particular client while these rules were in place: one invoice was for $137,000 for the plaintiff’s services, and the other invoice was for an additional $39,962. The bad actor emailed the client, posing as the employee, and wrote that it had “recently changed banks and our previous account . . . has been closed, hence, all payments effective immediately will be made directly to our new bank account in compliance with the policy of the company.” The bad actor requested confirmation as to when the client would pay the first invoice “so we can forward our new bank account details.” The client sent the payment to an account controlled by the bad actor. After discovering the bad actor’s conduct, the plaintiff recovered some of that money with the help of the U.S. Secret Service but sought insurance coverage for nearly $148,000, court records show. The defendant had insured the plaintiff under a technology professional liability (TPL) policy that incorporated a Data Breach Coverage Form, which included a “Cyber Business Interruption and Extra Expense” clause. The plaintiff submitted a claim to the defendant seeking coverage under the policy for the money lost to the bad actor. The defendant denied the plaintiff’s claim for coverage. The plaintiff sued, alleging that the defendant’s denial of coverage breached the TPL policy. The court found that using “‘impairment’ rather than ‘interruption’ in the Clause itself demonstrates that the TPL policy specifically grants coverage when a business suffers something less than a total suspension of operations.” The court further noted that the policy covers the loss, granted summary judgment to the plaintiff on its claim that the defendant breached the policy by denying coverage, and awarded the plaintiff nearly $148,000 in damages.

    Courts Privacy, Cyber Risk & Data Security Data Breach Cyber Insurance

  • Republican senators oppose FTC’s ANPR on data privacy and security

    Federal Issues

    On November 3, three Republican Senators sent a letter to FTC Chair Lina Khan expressing their opposition to the FTC’s Advanced Notice of Proposed Rulemaking (ANPR) for the Trade Regulation Rule on Commercial Surveillance and Data Security. As previously covered by InfoBytes, in August the FTC announced the ANPR covering a wide range of concerns about commercial surveillance practices, specifically related to the business of collecting, analyzing, and profiting from information about individuals. In the letter, the Senators argued that both consumers and businesses would benefit if Congress enacted comprehensive federal legislation addressing data privacy. According to the Senators, the FTC “lacks the authority to create preemptive standards” and the proposed rulemaking “would only add uncertainty and confusion to an already complicated regulatory landscape, increasing compliance costs, reducing competition, and ultimately harming consumers.” The Senators requested that the FTC withdraw its rulemaking proposal, explaining that “[c]onsumer data privacy and security are complex issues which will require standards that are robust, adaptive, and can balance the interests of consumers with the needs of businesses.” The Senators noted that they believe “that this balance can only be struck within federal legislation that is comprehensive and preemptive, such that the law creates a single national standard.”

    Federal Issues Privacy, Cyber Risk & Data Security Agency Rule-Making & Guidance FTC U.S. Senate Consumer Protection

  • FTC takes action against ed tech provider for lax data security

    Federal Issues

    On October 31, the FTC announced an administrative action against an education technology (ed tech) provider claiming that the company’s allegedly poor data security practices exposed millions of users and employees’ sensitive information, including Social Security numbers, email addresses, and passwords. According to the FTC’s complaint, due to the company’s alleged failure to adequately protect the personal information collected from its users and employees, the company experienced four data breaches beginning in September 2017, when a phishing attack granted a hacker access to employees’ direct deposit information. Less than a year later, another data breach involved a former employee using login information the company shared with employees and outside contractors to gain access to a third-party cloud database containing personal data for roughly 40 million users. In the following two years, the company experienced two more data breaches through phishing attacks that exposed sensitive employee data, including medical and financial information. Claiming violations of Section 5(a) of the FTC Act, the Commission alleged the company failed to implement basic security measures, stored personal data insecurely, and failed to implement a written security policy until January 2021, despite experiencing three phishing attacks.

    Under the terms of the proposed decision and order, the company would be required to take several measures to address the alleged conduct, including (i) documenting and limiting data collection; (ii) providing users access to collected data and allowing them to submit requests for deletion; (iii) implementing multifactor authentication or another authentication method to protect user and employee accounts; and (iv) implementing a comprehensive information security program that would encrypt consumer data and provide security training to employees, among other things.

    This action is part of the FTC’s ongoing efforts to make sure ed tech providers protect and secure personal data they collect and do not collect more information than necessary. As previously covered by InfoBytes, the FTC issued a policy statement in May warning ed tech providers that they must fully comply with all provisions of the Children’s Online Privacy Protection Act when gathering data about children. The FTC emphasized that ed tech providers may not harvest or monetize children’s data, cannot force children to disclose more information than is reasonably necessary for participating in their educational services, and must have procedures in place to keep the data secure, among other things.

    Federal Issues Privacy, Cyber Risk & Data Security FTC Enforcement FTC Act UDAP COPPA Data Breach Consumer Protection

  • Treasury official discusses cyber threats to financial sector

    Privacy, Cyber Risk & Data Security

    On November 1, Deputy Secretary of the Treasury Wally Adeyemo provided an update during the semi-annual joint session of the Financial and Banking Information Infrastructure Committee (FBIIC) and the Financial Services Sector Coordinating Council (FSSCC) on Treasury’s efforts to protect the agency and the financial sector from cyber threats. Adeyemo noted that actions taken to safeguard national security include “modernizing Treasury’s IT systems with an elevated cybersecurity threat focus, as well as ramping up partnerships with the financial and regulatory sectors far ahead of Russia’s unprovoked invasion of Ukraine to ensure swift, coordinated responses to thwart cyber attacks.” He further stressed the importance of fortifying these partnerships and remaining vigilant to heightened threats. Adeyemo also discussed how Russia’s invasion of Ukraine demonstrated the interconnectedness of the global financial sector and why enhancing operational resilience in major global banking hubs and vulnerable regions is a top priority for the Department. He called on FBIIC senior leaders to continue to drive Treasury’s “successful cloud and data protection workstreams forward,” while also building new initiatives focusing on other urgent, systemic risk issues that include the participation of FSSCC partners. “Reporting cybersecurity issues and vulnerabilities early and often enables us to better protect the broader financial sector,” Adeyemo said.

    Privacy, Cyber Risk & Data Security Department of Treasury Russia Ukraine Ukraine Invasion

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