Data Security Laws

Data Security and Data Breach Notification Laws #

Nothing comprehensive at the federal level; states have all the power here.

State Data Breach Notification Laws #

  • Each state, plus DC/PR/VI/GU have one
  • Laws share many commonalities, but plenty of variation
  • Discovering/being notified of a “breach of the security of the system” triggers duty to notify
  • Any state resident whose “personal information” (PI) was, or is reasonably believed to have been, acquired by an unauthorized person
  • Definitions comonly used by many states:
    • Breach of security of system: unlawful, unauthorized acquisition of PI
    • PI: first name/initial + last name + 1 more of
      • SSN, DL/ID card number, account/credit/debit number + pin/code/password
    • Laws generally apply to computerized data that includes PI
    • Excludes publicly available information lawfully made available to the public by government or media
    • Many states add more types of info to definitions of PI

Ex: in California

  • Need to notify attorney general (AG)’s office if organization has data breach
  • AG’s office curates list of data breaches on website; searchable by name and date; includes both private entities and CA public entities

Some states require notification ASAP

  • Criticism is that this forces notification before it is clear what exactly happened; vague initial notices can sow fear/uncertainty/doubt among public

State Data Security Laws #

  • About half of states have these; some apply to business only, government only, or both
  • Number of states with these has doubled since 2016
  • Some commonalities with a lot of state-by-state variance
  • In general, businesses that own, license, or maintain “personal information” about a state resident must
    • Implement and maintain “reasonable security procedures and practices” appropriate to the nature of the information
    • Protect the personal information from unauthorized access, destruction, use, modification, or disclosure
  • Some states have “sectoral laws”; e.g. payment card info, health data, etc
  • Some states impose specific security requirements (e.g. CO, MA, NY)
    • MA sued Equifax over breach since Equifax violated many provisions of its data security law; recently settled for millions of dollars

The evolution of California data security laws #

  • 2016: CA data security law: reasonable security procedures if maintaining personal data
  • 2019: Equifax addition: consumer credit reporting ages need to do software updates ASAP
  • 2020: California Consumer Privacy Act (CCPA) (see: ECPA lecture): allows individuals to sue companies for punitive ($100-$750) or actual damages if “nonencrypted and nonredacted” PI is exfiltrated
  • 2023: California Privacy Rights Act (CPRA): expands definition of personal information

NY Department of Financial Services regulations #

  • 2017: NYDFS enacted Cybersecurity Regulation; specifies minimum cybersecurity requirements for all covered financial institutions
    • Periodic risk assessments
    • Audit trail for cybersecurity events
    • Data retention limits and access controls for PII
    • Incident response plan
    • Encryption of sensitive data
    • Deploy multifactor authentication
    • Annual compliance certification
  • Criticism: rules may be rigid and unworkable
  • First enfocement action: July 2020, against First American Title Insurance Co.
    • Vuln dating back to May 2014 detected in December 2018, and company waited 6mo+ to notify customers
    • Anyone with a web browser could access millions of customers’ PI dating back 16 years
  • First penalty: March 2021, $1.5 million, against Residential Mortgage Services Inc.
    • Routine compliance exam revealed RMS hadn’t disclosed 2019 data breach or done required risk assessments
  • Now, FTC wants to be more like NYDFS
    • Gramm-Leach-Bliley Act “Safeguards Rule”: FTC is one of several agencies that GLBA gives regulatory and efnorcement authority re: how financial institutions protect consumer info
    • FTC wants to amend Safeguards Rule to imitate NYDFS regs

Federal Agency Enforcement #

SEC Breach Notification Requirements (and Data Security) #

  • Public companies must report “material” events to shareholders
    • “Material”: substantial likelihood that info might be important to make an investment decision
  • 2018 guidance on cybersecurity disclosures:
    • SEC requires companies to disclose factors that make investments in company’s securities speculative or risky
    • This includes cybersecurity risks or incidents
    • Disclosure of risk factors should be tailored, not generic
    • Disclosures must be “timely”; ongoing investigation may affect scope of disclosure but does not alone justify nondisclosure
  • March 2021 report by IT security firms: public companies aren’t following on SEC guidance
    • Too much vague legalese boilerplate, leaving investors in dark re: actual risks and actual attacks
    • Recommends private companies should provide more detail and candor to SEC
  • SEC’s current SolarWinds probe: document requests to hundreds of companies
    • Companies affected by SolarWinds Russian hacking operation being asked for records re: “any other” data breach or ransomware attacks since October 2019
    • Fear of liability if probe reveals breaches that should have been disclosed, or poor internal security controls
      • Data security: 3 recent enforcement actions under Reg S-P “Safeguards Rule”

SEC Yahoo Settlement (April 2018) #

  • Yahoo misled investors by failing to disclose one of the largest data breaches ever
  • Dec. 2014: Information security team learned that Russian hackers had stolen PII for hundreds of millions of user accounts
  • SEC alleged Yahoo failed to properly investigate breach circumstances and didn’t adequately consider whether it needed to disclose to investors
  • Over 2 years before breach was publicly disclosed - in 2016, when Yahoo was being acquired by Verizon
    • Note: MA AG sued Equifax for taking 40 days to disclose!
  • SEC also alleged that during that 2-year period, quarterly and anual SEC reports didn’t disclose breach; only said Yahoo faced the risk of breaches
  • SEC and Yahoo settled for $35 million penalty

FTC: Fair Information Practice Principles (1998) #

  • Notice/Awareness
  • Choice/Consent
  • Acess/Pariticipation
  • Integrity/Security: requires organizations to protect the quality and integrity of PI
  • Enforcement/Redress

FTC section 5 authority: “Unfair or deceptive acts or practices in or affecting commerce…are…declared unlawful”

  • Ability to levy fines
  • Ability to define adequate practices

FTC v. Wyndham Hotels (3rd Cir. 2015)

  • FTC has Section 5 authority to regulate data security practices
  • Wyndham had fair notice of potential “unfair” prong liability under FTC Act, due to FTC’s previous adjudication and interpretive guidance
  • Settled: 20-year consent decree, security focused practices, audits

FTC v. LabMD (11th Cir. 2018)

  • LabMD argued that without formal agency rulemaking, LabMD was not on notice of what’s unreasonable
  • Assumed without deciding that poor data security is an unfair practice
  • Court sided with LabMD
  • Pos LabMD, consent orders won’t be as useful to police future bad behavior; now FTC data security orders have gotten more specific

FTC sues everyone!

  • Dozens of 5 enforcement actions re: inadequate consumer PI protection since 2002
  • FTC consent orders require creation of comprehensive info security programs -> FTC developed a set of de facto security standards and practices
  • Failure to comply = fines for violated the order
  • Requirements for act or practice to be unfair:
    • “causes or is likely to cause substantial injury to consumers”
    • “which is not reasonably avoidable by consumers themselves”
    • “and is not outweighted by countervailing benefits to consumers or to competition”


  • CVS Caremark (2009)
  • Facebook (2011)
    • Facebook (2019) Cambridge Analytica - violation of 2011 decree - $5 billion fine
  • Google (2011)
  • Twitter (2011)
  • Uber (2017)
  • Lenovo (2017)
  • PayPal/Venmo (2018)
  • D-Link (2019)
  • Equifax (2019)

Class Action Litigation #

Lawsuits by people whose data was breached

  • Example: Yahoo
    • Class action lawsuit over 3 separate breaches affecting a total of 3 billion accounts
    • Settlement of $117.5 million in April 2019
    • Around 194 million people in the US and Israel may be eligible to make claims

Securities class action (by shareholders): still very effective

  • Yahoo: $80m, another $29m settlement
  • Equifax: $149 million