The Anatomy of an FTC Data Breach Investigation

The Anatomy of an FTC Data Breach Investigation

While we all await national data breach standards, the Federal Trade Commission (FTC) has made it clear that it plans to continue to assert its consumer protection authority and bring privacy and data security enforcement actions. In a recent blog post, Mark Eichorn, an Assistant Director in the FTC Bureau of Consumer Protection’s Division of Privacy and Identity Protection, outlined how the FTC typically investigates a potential data breach.

When launching a data breach investigation, the agency relies on Section 5(a) of the Federal Trade Commission Act, which prohibits “unfair or deceptive acts or practices in or affecting commerce.” The statute broadly defines unfair practices as those that “cause or [are] likely to cause substantial injury to consumers…not reasonably avoidable by consumers themselves and not outweighed by countervailing benefits to consumers or to competition.”

While the FTC may first initiate an informal investigation, it also has the power to subpoena corporate documents and testimony, such as security risk assessments, privacy policies, and training protocols. According to the FTC, its goal is to determine the circumstances surrounding the breach: what happened, what protections were in place at the time, and how the company responded. It then uses that information to determine whether to bring an enforcement action.

According to the FTC, it often decides to launch an investigation based on news reports, complaints from consumers or other companies, or requests from Congress or other government agencies. In the absence of a legal obligation to notify regulators of a data breach, companies must decide whether to self-report the issue to federal or state authorities. In its blog post, the FTC makes it clear that it favors companies that alert state or federal authorities when breaches occur rather than waiting for the FTC to come knocking.

As Eichorn writes:

We’ll also consider the steps the company took to help affected consumers, and whether it cooperated with criminal and other law enforcement agencies in their efforts to apprehend the people responsible for the intrusion. In our eyes, a company that has reported a breach to the appropriate law enforcers and cooperated with them has taken an important step to reduce the harm from the breach. Therefore, in the course of conducting an investigation, it’s likely we’d view that company more favorably than a company that hasn’t cooperated.

Of course, no good deed goes unpunished, and self-reporting can also backfire.  While the company may think that they took all of the appropriate steps to address a data breach, the FTC’s investigation may conclude otherwise and impose unexpected fines and penalties. Accordingly, all legal decisions in the wake of a potential data breach should be made in consultation with experienced counsel.

###

Do you have any feedback, thoughts, reactions or comments concerning this topic? Feel free to leave a comment below for Fernando M. Pinguelo.

Follow the twitter accounts @CyberPinguelo and @eWHW_Blog for timely comments on related issues. If you have any questions about this post or would like assistance with your legal needs, please contact me or the Scarinci Hollenbeck attorney with whom you work. To learn more about data privacy and security, visit eWhiteHouse Watch – Where Technology, Politics, and Privacy Collide (http://ewhwblog.com)