Wyndham decision affirms FTC jurisdiction and assertive role on “thorny” cyber and data security issues (Wiley Rein, 8 April 2014) – The Federal Trade Commission (FTC) has just won the first major round of its fight with Wyndham Hotels over data security. In FTC v. Wyndham Worldwide Corp., et al., No. 13-1887 (D.N.J.), the FTC’s jurisdiction to punish companies for allegedly lax data security practices was challenged when Wyndham moved to dismiss the FTC’s unfair and deceptive practices claims. On April 7, 2014, after briefing, oral argument, and several amicus submissions, federal judge Esther Salas rejected all of Wyndham’s arguments and affirmed the FTC’s jurisdiction. In doing so, she noted that the case highlights “a variety of thorny legal issues that Congress and the courts will continue to grapple with for the foreseeable future.” The court affirmed the FTC’s jurisdiction and its discretion to proceed by enforcement action, rejecting Wyndham’s argument that ‘the FTC’s “‘failure to publish any interpretive guidance whatsoever’ violates fair notice principles and “bedrock principles of administrative law.’” (quoting briefing). The court found the unfairness proscriptions in Section 5 to be flexible and noted that the FTC had brought “unfairness actions in a variety of contexts without preexisting rules or regulations.” In this sense, the Court found “inapposite” Wyndham’s reference to evolving frameworks at the Department of Homeland Security (DHS) and the National Institute of Standards and Technology (NIST) as examples of what the FTC should be expected to do. (See February 13, 2014 Client Alert ). The court analogized the FTC’s enforcement action to case-by-case approaches used by the National Labor Relations Board (NLRB) and Occupational Safety and Health Administration (OSHA), despite Wyndham’s argument that the “rapidly-evolving nature of data security” made those agencies’ actions poor examples. The court also rejected the challenge to the deceptive practices claim, finding that the FTC had adequately pled it under whatever standard applied.

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Image courtesy of FreeDigitalPhotos.net/Stuart Miles.

Hackers lurking in vents and soda machines (NYT, 7 April 2014) – Unable to breach the computer network at a big oil company, hackers infected with malware the online menu of a Chinese restaurant that was popular with employees. When the workers browsed the menu, they inadvertently downloaded code that gave the attackers a foothold in the business’s vast computer network. Security experts summoned to fix the problem were not allowed to disclose the details of the breach, but the lesson from the incident was clear: Companies scrambling to seal up their systems from hackers and government snoops are having to look in the unlikeliest of places for vulnerabilities. Hackers in the recent Target payment card breach gained access to the retailer’s records through its heating and cooling system. In other cases, hackers have used printers , thermostats and videoconferencing equipment. Companies have always needed to be diligent in keeping ahead of hackers – email and leaky employee devices are an old problem – but the situation has grown increasingly complex and urgent as countless third parties are granted remote access to corporate systems. This access comes through software controlling all kinds of services a company needs: heating, ventilation and air-conditioning; billing, expense and human-resources management systems; graphics and data analytics functions; health insurance providers; and even vending machines. Break into one system, and you have a chance to break into them all. Data on the percentage of cyberattacks that can be tied to a leaky third party is difficult to come by, in large part because victims’ lawyers will find any reason not to disclose a breach. But a survey of more than 3,500 global I.T. and cybersecurity practitioners conducted by a security research firm, the Ponemon Institute, last year found that roughly a quarter – 23 percent – of breaches were attributable to third-party negligence. Security experts say that figure is low. Arabella Hallawell, vice president of strategy at Arbor Networks, a network security firm in Burlington, Mass., estimated that third-party suppliers were involved in some 70 percent of breaches her company reviewed.

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Image courtesy of FreeDigitalPhotos.net/Salvatore Vuono.