Russians Hack Clinton Campaign System; FTC: LabMD Liable in Data Security Suit; EU Member States issue statement on Privacy Shield; NIS Directive published – Implementation into national law by May 2018; EU Data Protection Supervisor: e-Privacy directive should meet GDPR-requirements.

Clinton Campaign Data Breach brings data security into 2016 campaign yet again

On July 29, an F.B.I. official told the New York Times that computer systems used by the Clinton presidential campaign were hacked in the latest in a string of cybersecurity attacks targeting political entities. The Times noted the attacks appeared to have been carried out by the Russian intelligence services.  These revelations follow news of similar attacks carried out earlier in the summer, including a Russian government hack of the Democratic National Committee’s computer network. Investigations into both attacks are ongoing.

FTC Reasserts Data Security Enforcement Powers in suit against LabMD

Late last week, the FTC issued its long-awaited final order in its investigation of LabMD’s alleged unfair data security practices. FTC filed charges against LabMD, a clinical laboratory used by physicians, for allegedly failing to protect sensitive personal information for over 750,000 patients.  An ALJ had earlier dismissed FTC’s charges, holding that LabMD’s data security practices failed to cause substantial consumer injury. The Commission unanimously reversed that decision.

FTC claimed that LabMD “lack[ed] even basic precautions to protect . . . sensitive consumer information maintained on its computer system. Among other things, it failed to use an intrusion detection system or file integrity monitoring; neglected to monitor traffic coming across its firewalls; provided essentially no data security training to its employees; and never deleted any of the consumer data it had collected.” Firms collecting personal information should note that future FTC enforcement is likely to note the absence of any of these systems as evidence of sub-par data security practices.

This suit follows the FTC’s 2014 victory in the Wyndham case, which validated the FTC’s authority to regulate data security.  For more information on the Wyndham decision, see the Crowell Data Law blog post on the subject.


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DOJ Proposes Workaround to Microsoft Ruling; United States Joins Irish Facebook Case; St. Louis Cardinals Scouting Director Sentenced to 46 Months; EU’s Advocate General Okays National Data Retention Laws; Data Protection Authority of Hamburg Becomes “Completely Independent”; 9th Circuit Suggests Password Sharing is a Federal Crime

DOJ Seeks Legislative Circumvention of 2nd Circuit’s Microsoft Ruling

Late last week, Assistant Attorney General Peter Kadzik sent a letter to Vice President Biden (in his role as presiding officer of the U.S. Senate) asking Congress to amend the Electronic Communications Privacy Act (ECPA) to permit government warrants to reach data stored overseas. This letter was written in response to the Second Circuit’s ruling earlier this month in Microsoft v. U.S., in which the Second Circuit ruled that ECPA’s data seizure provisions did not apply extraterritorially and in which Judge Lynch, in concurrence, called for congressional intervention.  For more information about the Microsoft ruling, please see the Crowell & Moring “Data Law Insights” blog post detailing the court’s decision.

ECPA reform, General Kadzik’s letter argued, will resolve cross-border data access issues for both domestic and foreign governments investigating criminal activity, including terrorism. The proposal seeks to change U.S. law to “authorize law enforcement to obtain electronic data located abroad.” Admonishing the Second Circuit’s decision, General Kadzik noted the “significant public safety implications of the Microsoft decision.”


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“Pokémon Go” Developer feels the heat over data collection; 2nd Circuit Ruling limits government’s access to data stored overseas; 9th Circuit CFAA Ruling increases Facebook’s control over its Users’ Data; Dutch Study reveals tension between EU Trade Deals and Data Protection

“Pokémon Go” Developer in Hot Water over Extensive Data Collection Practices

In early July, mobile game developer Niantic released “Pokémon Go,” a free-to-download “augmented reality” game for Android and iOS devices. In less than a week, the game had been downloaded by more than 15 million unique users, making the game’s launch one of the most widely-adopted in history. Privacy advocates soon raised serious questions about the game and its accompanying privacy policy, which until July 12 granted full access to users’ Google account data unless users opted-out of such permissions—prompting Niantic to issue its first update resolving the permissions issue.

On July 12, Senator Al Franken (D-MN) sent a letter to Niantic CEO John Hanke demanding the company explain in detail the types of data Niantic collects from players, why that data “in necessary for the provision or improvement of services,” and how the company plans to use the data gathered. Franken’s letter also questioned the company’s opt-out data collection practices, suggesting that “Niantic consider making this collection/access opt-in.”  Franken, who serves as the Ranking Member on the Senate Judiciary Committee’s Subcommittee on Privacy, Technology, and the Law, has in the past spoken out against similar practices by other mobile app developers, including Uber and Lyft. Mr. Hanke has until August 12 to respond to Sen. Franken’s questions.


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Article 31 Committee approves Privacy Shield; House Cuts FCC Funding Over Attempted Broadband Privacy Regulations; No Charges for Clinton in Data Security Probe; European Commission launches public-privacy partnership on cybersecurity; European Parliament adopts NIS Directive; Privacy Code of Conduct for mHealth app providers finalized; French parliament about to make French Privacy act more severe; Russia introduces new data retention obligations.

Article 31 Committee approves Privacy Shield

On July 8, 2016, the Article 31 Committee has finally given its support for the adoption of the “EU-U.S. Privacy Shield”, the new framework for cross-Atlantic data transfers.

For more details, please see our latest client alert here.

House Defunds FCC’s Data Privacy Efforts for Broadband Providers

On July 7, the House of Representatives voted to cut off funding for the FCC’s proposed privacy regulations of broadband service providers. The measure, attached as an amendment to the 2017 Financial Services and General Government Appropriations Bill, cut the FCC’s funding by more than 17%. Calling the FCC’s proposed rules “extreme,” Rep. Marsha Blackburn (R-TN), the amendment’s author, claimed the measure was necessary to reassert the Federal Trade Commission’s status as the go-to federal data privacy regulator. The FCC, Rep. Blackburn asserted, “simply doesn’t have the requisite technical expertise to regulate privacy.”

The proposed regulations, which the FCC announced in March 2016, would require ISPs to disclose how data regarding customers’ online activities could be collected and recorded. These proposed rules represented the FCC’s first major attempt to regulate broadband providers in the aftermath of the agency’s February 2015 decision to treat broadband as a public utility. Several broadband providers had expressed public reservations about the FCC’s proposed rulemaking and actively lobbied legislators to act. The bill, which passed in a 239-185 vote, next heads to the Senate for consideration.


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Adoption of Privacy Shield expected in early July; Federal Court limits VPPA liability; Belgian Court overturns Facebook fine; FTC robocall crackdown; A rare HIPAA criminal conviction; UK’s ICO fines Brexit campaigners for mass text messages; House report calls for national encryption commission.

European Commission expects adoption of Privacy Shield for beginning of July

European officials are hoping to finally formalize the “EU-U.S. Privacy Shield”, the cross-Atlantic data transfer pact aiming at replacing the formerly invalidated “U.S.-EU Safe Harbor” Framework, on July 5. The initial draft agreement has been amended to include new explanations of U.S. governmental entities and further limitations on the bulk collection of data and mass surveillance. The European Commission is now confident that also the Article 31 Committee will give its approval to the draft framework.

Many European Privacy regulators and EU bodies, such as the European Parliament and the European Data Protection Supervisor, had argued that the initial draft did not sufficiently protect the fundamental rights of European data subjects. The revised version now “only” allows bulk collection “exceptionally”, where targeted collection is “not feasible”, although it remains open how ‘feasibility’ should be determined.


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Brexit effect on EU and UK Privacy rules; EU and U.S. to strengthen ‘Privacy Shield’; Ponemon Study on Healthcare Data Security; Mobile ad provider fined for deceptive conduct FTC comments on the Internet of Things

Brexit – what does it mean for EU and UK Privacy rules?

On June 23, 2016, the population of Great Britain in a historical referendum voted to leave the European Union with a majority of 52% vs 48%.  Although this decision does not have immediate impact on the membership of the United Kingdom in the EU (the UK is still a Member of the European Union and will remain so until at least 2018, see also FAQ on the further procedure by the European Commission), waves of discussion are rising high, among others about the future of UK Privacy laws and the implementation of the General Data Protection Regulation (GDPR).

In a statement of June 24, 2016, the UK’s Data Protection Authority (ICO) has stressed that “the Data Protection Act remains the law of the land irrespective of the referendum.” This means that on the short term, in principle nothing will change. This also applies with regard to the ongoing EU reform, as a result of which the GDPR will enter into force on May 25, 2018, and thus in any event before the earliest possible day for a definite exit of the UK out of the European Union.  It will therefore – at least for a short period of time – also apply to UK businesses.

What will certainly have an impact, however, is the moment in which the UK factually leaves the European Union. Although the ICO has stressed that it aims to stay as close to European Privacy laws as possible also post-Brexit, this situation would have an immediate impact on businesses sending data to the UK.  As soon as the UK would be no longer part of the European Union, due to the absence of an ‘Adequacy Decision’ of the European Commission relating to the UK, companies would have to put in place other transfer mechanisms such as Standard Contractual Clauses or Binding Corporate Rules, in order to lawfully continue to transfer personal data from European countries to the UK as soon as the exit is completed. This could only be avoided if the UK would guarantee an adequate level of Data Protection standards, which would have to be acknowledged by the European Commission.

The ICO has made its position clear: “Having clear laws with safeguards in place is more important than ever given the growing digital economy, and we will be speaking to government to present our view that reform of the UK law remains necessary.”


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A victory for net neutrality; U.S. may join Irish Facebook Data-Transfer case; EU-U.S. Privacy Shield by early July?; French Data Protection Authority opens GDPR consultation; FTC addresses proposed TCPA changes; DOJ and DHS cybersecurity sharing guidelines.

Federal appellate court upholds net neutrality

The U.S. Court of Appeals for the D.C. Circuit upheld “net neutrality” rules that require all broadband providers to treat internet traffic the same regardless of source.  Last year, the Federal Communications Commission (“FCC”) issued its net neutrality decision, which reclassified broadband service as common carriers under the Communications Act and thus brought Internet service within the FCC’s power to regulate common carriers under Title II of the Communications Act.  The FCC then issued rules banning providers from blocking, throttling, or otherwise degrading internet traffic lawful content, and also from engaging in paid prioritization of traffic.

A number of Internet service providers and other groups challenged the FCC’s authority to reclassify broadband service and promulgate such regulations. They also challenged the legality of the net neutrality rules.  In a 115-page opinion, the D.C. Circuit rejected each challenge and, in doing so, affirmed the FCC’s power to regulate broadband service under Title II of the Communications Act.  The court also rejected the argument that net neutrality impacts service providers’ First Amendment rights, explaining that a service provider “does not . . . ‘speak’ when providing neutral access to Internet content as common usage.”

The petitioners are expected to appeal the ruling to the Supreme Court. Unless the Court reverses this ruling, the FCC retains broad power to regulate Internet service providers as common carriers, and may use that power to continue implementing and enforcing regulations concerning open access to content as well as consumer privacy.


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$1M Fine for Morgan Stanley Data Breach; German DPA Issues Data Transfer Fines; FTC Critiques FCC Privacy Proposal; New Contractor Cybersecurity Rules; Drone Operations Best Practices

Morgan Stanley fined $1M for alleged failure to secure client data

The U.S. Securities and Exchange Commission (“SEC”) and Morgan Stanley Smith Barney LLC (“Morgan Stanley”) reached a settlement of $1 million for alleged cybersecurity failures that led to exposure of client information.  The SEC alleged that Morgan Stanley violated the Safeguards Rule, a federal regulation concerning customer data protection, by failing to implement written policies and procedures protecting confidential information.  These failures, combined with the failure to monitor employee access to data, ultimately led to a Morgan Stanley employee unlawfully downloading and selling confidential information of more than 730,000 clients between 2011 and 2014.

This may be a telling sign for the future of SEC involvement in data breaches. The SEC’s announcement reflects its expectation that “SEC registrants of all sizes [will] have policies and procedures that are reasonably designed to protect customer information.”  Presumably, failures to implement such policies may invite aggressive SEC scrutiny and investigation.  Companies within the SEC’s jurisdiction should ensure that their procedures comply with federal regulations.  If not, future data breaches may give rise to enforcement and fines by the SEC, in addition to other agency enforcement as well as civil damages available to affected parties under state or federal data breach laws.

German Data Protection Authority fines three companies for U.S. data transfers

The threat of enforcement action based on the invalidation of the former “U.S.-EU Safe Harbor Framework” for data transfers from Europe to the U.S. for a long time was a rather theoretical concern. The German Data Protection Authority (“DPA”) of Hamburg has now made this concern viral, announcing that it has fined three companies for continued transfers of personal data from Europe to the U.S. without additional safeguards.

Although the fines are comparatively low (€ 8,000 – € 11,000), this is definitely the last wake-up call for companies, who have not yet implemented additional safeguards for their EU-U.S. data transfers – the Hamburg DPA is continuing to investigate and has already announced that the next fines it will impose on companies can be expected to be higher. For more on this development, see our recent client alert.


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EU-U.S. Agreement on Law Enforcement Data; European Data Protection Supervisor Criticizes Privacy Shield; House Members Criticize FCC Privacy Proposal; NHTSA Targets Automotive Cybersecurity; Yahoo Releases National Security Letters; CareFirst Data Breach Lawsuit Dismissed; FDA Guidance on Data Protection in Investigations

EU and U.S. sign Umbrella Agreement on Law Enforcement Data

On June 2, 2016, Vera Jourová, European Commissioner for Justice and Consumer Protection, Dutch minister Ard van der Steur and U.S. Attorney General Loretta E. Lynch signed the “Umbrella Agreement”, a deal between the U.S. and the EU “on the protection of personal information relating to the prevention, investigation, detection and prosecution of criminal offenses”. The agreement aims at enhancing the cooperation of the EU and the U.S. in criminal enforcement (including terrorism), while at the same time protecting personal data of European citizens, when transferred from the EU to the U.S. for criminal investigations.

The text of the agreement, which was negotiated over a long period due in part to a Court of Justice of the EU (ECJ) finding that European citizens lacked adequate rights of redress, includes provisions on purpose limitation, information security, data retention, rights of data subjects, breach notifications and onward transfers. A “fact sheet”-FAQ is available on the Commission’s website. Before the agreement can be finally concluded, the European Parliament will still need to give its consent.

European Data Protection Supervisor criticizes “EU-U.S. Privacy Shield”

On May 30, the European Data Protection Supervisor (EDPS), Giovanni Buttarelli, issued an opinion on the draft “EU-U.S. Privacy Shield (“Privacy Shield”), which is in line with the criticism previously raised by the Article 29 Working Party and the European Parliament.


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The Panama Papers Leak – An overview on histories’ biggest data leak; Article 29 Working Party about to release opinion on EU-U.S. Privacy Shield; EU: GDPR and PCJ DPD about to be approved next week – final consolidated text published by Council; US: New HIPAA Audit Protocol Released as a Guidance Tool for phase two of Compliance Audits; U.S. Sneak News: Defend Trade Secrets Act, NPRM and Sony Settlement Approval. EU: GDPR, PCJ DPD and PNR Directive adoped by Parliament; U.S.: House Judiciary Committee approves E-Mail Privacy Act; Senate to require airlines to report cyberattacks; FTC issues online tool identifying applicable law for health apps; Global: Turkey releases first comprehensive Data Protection law; Connected cars found vulnerable for cyberattacks; Data Breaches May Waive Attorney-Client Privilege?; Encryption Continues to Dominate Privacy Headlines; Hospital Settles with HHS for $ 2.2 Million in HIPAA Action; Southern District of New York Adds Ransomware Conspirator to Hacking Case; European and Canadian Data Protection Authorities Investigate IoT Devices; Norway Requires Data Breach Notification for Individuals

The Panama Papers Leak – An overview on histories’ biggest data leak

On April 3, 2016, reports revealed that a set of 11.5 million confidential documents (“the Panama Papers”), providing detailed information about more than 200,000 offshore companies connected to Panamanian legal service provider Mossack Fonseca, had been made available to German Daily Newspaper Süddeutsche Zeitung by an anonymous source in 2015.

The documents, which form part of the biggest data leak in history, reveal aspects on (potential) exploitations of offshore tax regimes and other illegal purposes, such as fraud or drug trafficking. Among the people concerned are not only big companies, but also twelve national leaders among 143 politicians, celebrities, government officials or other law firms. The Süddeutsche Zeitung, given the scope of the leak, involved the International Consortium of Investigative Journalists (ICIJ) and about 400 other journalists in 76 different countries to investigate and analyze the documents. ICIJ has promised to publish a full list of companies involved in early May 2016.

Mossack Fonseca, the leaked firm, defended its commercial conduct, stating that itself would always comply with applicable laws and carry out thorough due diligence on its clients. However, the leak will have a huge impact on the offshore business, as the biggest selling point of this business, secrecy, has been massively cracked.


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