Cybersecurity

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On December 6, 2018, in Williams-Diggins v. Mercy Health, an Ohio district court granted the defendant’s motion to dismiss a putative class action related to a cybersecurity vulnerability in the Ohio-based medical provider’s computer systems that allegedly left patient health information publicly accessible online for years.  United States District Judge Jeffrey Helmick dismissed the case for lack of jurisdiction (among other reasons), finding that the plaintiff’s theories of harm—overpayment and risk of future exposure or breach of his sensitive health information—were insufficient to create Article III standing. Continue Reading Ohio District Court: No Standing Where Patients’ Medical Records “Might” Be Accessed Improperly Due To A Cybersecurity Vulnerability

On November 27, 2018, the Senate Commerce, Science, and Transportation Committee’s Subcommittee on Consumer Protection, Product Safety, Insurance, and Data Security held an oversight hearing of the U.S. Federal Trade Commission.  The hearing marked the first appearance before the Senate of the full slate of current FTC commissioners: Republicans Chairman Joe Simons, Noah Phillips, and Christine Wilson, and Democrats Rohit Chopra and Rebecca Slaughter.  In addition to confirming that the FTC will continue to prioritize data security and privacy enforcement under its consumer protection mandate, the commissioners were unanimous in their support for comprehensive federal data privacy legislation to be enforced by the FTC.  Each, however, offered slightly different views as to the right approach for potential legislation and future enforcement. Continue Reading FTC Chair, Commissioners Endorse Comprehensive Privacy Legislation at Senate Oversight Hearing

Knuddels GmbH & Co KG, a German social media app, has received the first administrative fine issued by a German supervisory authority under the General Data Protection Regulation (“GDPR”).

The fine of € 20,000 has been levied on Knuddels by the Commissioner for Data Protection and Freedom of Information in Baden-Württemberg (one of 16 regional data protection authorities in Germany) following a hack reported by Knuddels in September which resulted in the personal data of approximately 330,000 users being stolen and subsequently published. Such personal data included users’ emails addresses and passwords. Continue Reading First German Fine Issued Under the GDPR

On November 16, 2018, the U.S. Securities and Exchange Commission (“SEC”) Division of Corporation Finance (“Corp. Fin.”), Division of Investment Management, and Division of Trading and Markets issued a joint public statement on “Digital Asset Securities Issuance and Trading.”  The public statement is the latest in the Divisions’—and the Commission’s—steady efforts to publicly outline and develop its analysis on the application of the federal securities laws to initial coin offerings (“ICOs”) and certain digital tokens.  These efforts have combined a series of enforcement proceedings with public statements by Chairman Jay Clayton and staff, including a more detailed statement of the SEC’s analytical approach in Corp. Fin. Director William Hinman’s speech on digital assets in June 2018. Continue Reading SEC Divisions’ Issue Public Statement on Digital Assets and ICOs, Echoing Recent Enforcement Actions

On November 6-8, 2018, the U.S. Federal Trade Commission (“FTC”) hosted a public hearing on “Privacy, Big Data, and Competition.”  The event was part of a series of public hearings on Competition and Consumer Protection in the 21st Century, modeled after the agency’s 1995 “Pitofsky Hearings.”  The series solicits input from a wide variety of private and public sector stakeholders and academics to inform and guide the FTC’s regulatory and enforcement efforts in light of broad economic changes, evolving business practices, new technologies, and international developments. Continue Reading Consumer Protection and Antitrust Regulators, Experts Discuss Privacy, Big Data, and Competition at FTC Hearings

On October 4, 2018, the Financial Markets Law Committee (“FMLC”) published a paper on the subject of “Data Protection: Issues of Legal Uncertainty Arising from the UK Data Protection Act 2018.”  Cleary Gottlieb contributed to this paper as a participant in the FMLC’s data protection working group.

The FMLC’s paper focuses on issues of legal uncertainty potentially hindering the continuation of the lawful flow of personal data between the UK, the European Economic Area and/or Third Countries (i.e., countries that are not Member States of the European Union) following Brexit, as well as on the framework and mechanics for supervision and enforcement of the data protection regimes post-Brexit. The FMLC’s paper also proposes solutions and/or mitigants to these uncertainties.

The FMLC is an educational charity that was established at (but is independent from) the Bank of England. Its stated role is to identify issues of legal uncertainty or misunderstanding, present and future, in the framework of the wholesale financial markets which might give rise to material risks and to consider how such issues should be addressed.

On October 16, 2018, the Securities and Exchange Commission released a Report of Investigation that cautioned public companies to consider cyber threats when designing and implementing internal accounting controls.  The report was based on an investigation of nine victims of email cyber-fraud schemes for potentially failing to have adequate internal accounting controls, in violation of the Securities Exchange Act of 1934.  The report highlights the need for companies to reassess their controls in light of the current cybersecurity risk environment.  By describing the remedial steps taken by the investigated companies, it further provides guidance about the key areas that companies should consider when assessing their own policies and procedures. Continue Reading SEC Investigative Report Urges Public Companies to Guard Against Cyber Threats When Implementing Internal Accounting Controls

On October 15, 2018, the U.S. Department of Health and Human Services, Office for Civil Rights (OCR) announced a $16 million settlement with Anthem, Inc. over alleged violations of federal privacy and security regulations under the Health Insurance Portability and Accountability Act (HIPAA).  The settlement resolves an investigation following a data breach that exposed protected health information of nearly 79 million people.  According to OCR, the incident is the largest health data breach to date in the United States and Anthem’s payment similarly represents the largest HIPAA settlement to date.  The settlement is consistent with OCR’s recent focus on enforcing regulatory requirements to conduct an accurate and thorough risk analysis and maintain appropriate mechanisms to monitor systems that contain protected health information and to control access to that information. It also highlights the agency’s distinct cybersecurity remediation approach. Continue Reading The U.S. Department of Health And Human Services Settles With Anthem for Record $16M Over Alleged HIPAA Violations

The £16.4 million fine imposed by the UK Financial Conduct Authority on Tesco Personal Finance plc provides a salutary lesson on the regulatory exposure associated with failing adequately to prepare for and respond to a cyber-attack – one of the FCA’s stated regulatory priorities.

The episode illustrates how cybersecurity failures can expose a business not only to increasingly draconian penalties under the EU’s General Data Protection Regulation where personal data is involved (effective from 25 May 2018), but also to regulatory enforcement penalties where systems are not in place or are not operated effectively in a crisis.

It highlights the critical importance for businesses of:

  • Establishing cybersecurity and data protection compliance firmly on the management and risk agenda. More than just the costs of doing business in the digital economy, these can give rise to serious regulatory and franchise exposure;
  • Taking effective action to prevent foreseeable cyber-attacks;
  • Establishing appropriate crisis management procedures and providing training to staff on how to invoke them, including through desktop exercises that provide scenario planning training; and

Engaging constructively and immediately with the relevant authorities and stakeholders to mitigate even greater damage to the business once an attack has occurred.

Please click here to read the full alert memorandum.

On September 26, 2018, the attorney generals of all 50 states and the District of Columbia (“State AGs”) announced a record-breaking $148 million settlement with Uber Technologies Inc. (“Uber”) over Uber’s alleged failure to disclose a massive data breach in 2016.[1] The settlement holds significant implications for U.S. companies concerned about their cybersecurity measures in the face of increasing incidents of data breaches, as well as intensifying scrutiny by authorities. Continue Reading State AGs Announce Settlement With Uber Over Data Breach