Please join us for a seminar on December 5 in Washington, D.C. or December 6 in New York City on “Law Firm Data Security”. Our very own Partner Evan Wolff will be presenting alongside RSA’s Doug Howard and Niloofar Howe. Our panelists will cover all sorts of critical issues such as:

  • How to defend high-demand

Last week, a federal court sentenced a former systems administrator convicted of accessing his former employer’s computer network and uploading malicious code designed to disrupt and damage the company’s manufacturing operations.

Brian P. Johnson worked for years as an information technology specialist and systems administrator at Georgia-Pacific’s Port Hudson, LA facility.  In February 2014, Georgia-Pacific

Bavarian DPA: fines under GDPR to be calculated based on revenues of whole company group; ICO publishes report on data security incident trends.

Bavarian DPA: fines under GDPR to be calculated based on revenues of whole company group

On September 01, 2016, the German Data Protection Authority of Bavaria (BayLDA) has announced that according to their understanding, sanctions under the GDPR will be calculated based on the revenue of a whole company group. According to the authority, this should apply even when only one single entity is responsible for an incident.

In its position paper, the BayLDA elaborates that fines under the GDPR have to be “effective, proportionate, and dissuasive.” For most infringements, the fine can amount up to a maximum of either € 10 million, or 2% of the company’s annual global turnover (the higher will apply). For serious infringements, the fine can even amount up to the higher of € 20 Million or 4% of the respective turnover. The turnover will comprise of the turnover of the whole company group a company belongs to, according to recital 150 of the preamble, which relates to the “economic concept of an undertaking”.

Although the BayLDA’s position paper is non-binding, the interpretations and views published can nevertheless be considered very important hints on how in particular the German Data Protection authorities will interpret and enforce the new Regulation, which will enter into force on 25 May 2018. The European Data Protection Board, a group of representatives of the EU Member States (currently known as Article 29 Working Party), is expected to issue guidelines on the calculation of fines.


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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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On May 26, 2016, in the case of P.F. Chang’s v. Federal Insurance Co., the U.S. District Court for the District of Arizona held that a stand-alone cyber insurance policy did not cover fees assessed by a third party credit card processing company against P.F. Chang’s following a June 2014 data breach.  This decision is notable because it is one of the first involving the scope of coverage under a stand-alone cyber insurance policy.  Furthermore, since hiring a credit card processing company is a common practice among restaurants and retailers, if and when a data breach occurs, policyholders that use these third party companies may encounter similar fees.

At the core of this dispute was P.F. Chang’s decision to hire a third-party company to process credit card payments instead of dealing directly with credit card associations.  After the 2014 data breach, in which computer hackers obtained and posed to the Internet about 60,000 credit card numbers belonging to P.F. Chang’s customers, the credit card associations imposed fees on the third-party processing company, Bank of America Merchant Services (“BAMS”).  BAMS then passed these fees on to P.F. Chang’s pursuant to the service contract.

Federal Insurance Company (“Federal Insurance”) had sold a CyberSecurity by Chubb Policy (the “Cyber Policy”) to P.F. Chang’s corporate parent, Wok Holdco LLC, which was in effect from January 1, 2014 to January 1, 2015.  After learning of the data breach, P.F. Chang’s tendered its claim to Federal Insurance.  Federal Insurance reimbursed P.F. Chang’s for over $1.7 million in costs incurred as a result of the data breach, including a forensic investigation and a third-party lawsuit.  However, Federal Insurance refused to reimburse P.F. Chang’s for fees assessed by BAMS in connection with the data breach, and P.F. Chang’s filed suit.


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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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