On 9 July, the UK Information Commissioner’s Office (“ICO”) issued a notice of its intention to fine Marriott International, Inc. (“Marriott”) £99,200,396 for alleged infringements of the EU General Data Protection Regulation ( “GDPR”) in connection with a cybersecurity incident notified to the ICO by Marriott in November 2018. The ICO’s public statement followed Marriott’s disclosure of the ICO’s intention to the US Securities and Exchange Commission (“SEC”) and comes just one day after the ICO published its notice of intention to fine British Airways £183.4 million (see our previous blog post here). The proposed fines, if enforced by the ICO, will be the two highest fines levied under the GDPR, to date.
In its press release, the ICO reported that it has carried out an extensive investigation into the cybersecurity incident which is thought to have initially occurred when the guest reservation database of the Starwood hotels group (“Starwood”) was compromised as far back as 2014. Starwood was later acquired by Marriott in 2016 but this cybersecurity incident was allegedly not discovered by Marriott until 2018. A variety of customer personal data contained in approximately 339 million of the hotel group’s global guest records is reported to have been affected. Of these records, around 30 million related to individuals in the European Economic Area and, within that, 7 million records related to individuals in the UK.
The ICO commented that its investigation revealed that Marriott “failed to undertake sufficient due diligence when it bought Starwood and should also have done more to secure its systems”. The ICO’s statement highlights the importance of pre-acquisition cybersecurity due diligence in the context of mergers and acquisitions. However, the ICO’s notice does not explain the “failure” of Marriott, including what type of diligence Marriott could have conducted on the IT systems of Starwood as its M&A target that would have revealed the existence of the data breach (especially given that Starwood itself did not appear to have had any knowledge of the breach either). Moreover, while the ICO’s statement suggests that after the acquisition Marriott did not use reasonable measures to ensure that data stored in its (and Starwood’s) systems was secured, it does not provide further detail on what additional measures would have been appropriate or how such measures could have helped identify the data breach earlier. In any event, the proposed fine is an important reminder that purchasers and investors must use both legal and technical experts to conduct state-of-the-art due diligence on cybersecurity and data protection/privacy matters.
The ICO has also not detailed the basis upon which it has calculated the size of the proposed fine, however it appears to amount to approximately 0.6% of Marriott’s revenues in 2018 (US$20.758 billion). This sanction for Marriott continues the tone set for enforcement of the GDPR in the UK, further emphasised by the comments of the UK Information Commissioner, Elizabeth Denham, who stated:
“The GDPR makes it clear that organisations must be accountable for the personal data they hold. This can include carrying out proper due diligence when making a corporate acquisition, and putting in place proper accountability measures to assess not only what personal data has been acquired, but also how it is protected. Personal data has a real value so organisations have a legal duty to ensure its security, just like they would do with any other asset. If that doesn’t happen, we will not hesitate to take strong action when necessary to protect the rights of the public.”
The ICO press release explains that Marriott has co-operated with the ICO’s investigation and has “made improvements to its security arrangements since these events came to light”. Marriott now has the opportunity to make representations to the ICO before a final sanction is imposed and the hotel group has stated in its SEC filing that it “intends to respond and vigorously defend its position”.
Marriott’s President and CEO, Arne Sorenson, made the following statement in the SEC filing about the proposed fine from the ICO:
“We are disappointed with this notice of intent from the ICO, which we will contest. Marriott has been cooperating with the ICO throughout its investigation into the incident, which involved a criminal attack against the Starwood guest reservation database. We deeply regret this incident happened. We take the privacy and security of guest information very seriously and continue to work hard to meet the standard of excellence that our guests expect from Marriott.”