FTC Wins First Round In Battle Over Data Security

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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