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It used to happen once every year or two, but the pace has accelerated noticeably over the past few years: The Federal Trade Commission (FTC) issues a Decision and Order summarizing the terms of a settlement in an enforcement action under Section 5 of the FTC Act. Many of the best and brightest have been there. Google, Facebook, Lexis, Sears, Twitter and Microsoft are just a few of the household names that have reached an agreement with the FTC. Each time, privacy and data protection officers, attorneys in law firms and in-house counsel huddle together to review the terms of the settlement and the facts in the complaint.

A recent survey by Jay Cline, CIPP/US, confirms that, in enforcement of privacy law, the FTC is in a league of its own among privacy regulators worldwide. It has initiated far more enforcement actions, levied greater fines and set forth a more comprehensive enforcement agenda than any other data protection authority. Indeed, with the weighty obligations imposed on Google, Facebook and Myspace, and recent enforcement action against a dozen American companies for alleged violations of the EU-U.S. Safe Harbor arrangement, many would argue that the FTC delivers some of the most robust enforcement of European data protection law. Consequently, the implications of the agency’s decisions are studied carefully and implemented not only in the United States but also in Europe and the rest of the world. And not just by legal counsel. Product teams, engineers, information security officers, marketing professionals and senior management have also begun paying attention.

This is why the IAPP Westin Research Center has undertaken a project to produce an FTC Privacy Casebook—which collates, organizes, indexes, tags and annotates the body of FTC privacy and data security jurisprudence—and make it available for you to search and use. Although all documents are available for download as PDFs on the FTC website, there is currently no easy way to search and organize them and review analysis and headnotes in a centralized spot. The IAPP believes that the FTC Privacy Casebook will be a useful resource for businesses that seek to comply with the law and best data practices but often find themselves groping for guidance and direction.

It’s a big project. However, ahead of the largest ever (yet again) IAPP Global Privacy Summit in Washington, DC, next week, the IAPP Westin Research Center has published a useful preview of the FTC Privacy Casebook, which is scheduled for launch at the end of the year.

Explore the FTC Casebook Preview

  • The Westin Research Center has put together expert analysis and gathered all the relevant documents for 10 top FTC settlements in handy cross-referenced fashion

In this preview, we provide a concise summary, analysis and web access to a selection of 10 top FTC privacy enforcement actions. We intentionally use “10 top” and not “top 10”—if you count the two Google cases separately, we have actually selected 11—since with such a deep and rich body of knowledge, opinions may differ with respect to relative importance. Some cases involve Fortune 50 companies, with data practices impacting hundreds of millions of individuals. Others feature interesting paradigm shifts in FTC enforcement practice or nascent legal theories. Yet others involve large fines.

The black letter law is simple enough. Under Section 5, a trade practice is deceptive if it involves a “material representation, omission or practice that is likely to mislead a consumer acting reasonably in the circumstances, to the consumer’s detriment” (see the FTC Deception Statement). A trade practice is unfair if it “causes or is likely to cause substantial injury to consumers which is not reasonably avoidable by consumers themselves and is not outweighed by countervailing benefits to consumers or competition” (15 U.S.C. § 45(n); also see FTC Unfairness Statement). In addition, the FTC enforces a handful of sector-specific privacy laws, including the COPPA, GLBA, FCRA, TCPA and the Telecommunications Act, as well as the EU-U.S. Safe Harbor.

In practice, however, it is much more complicated. Terms like “reasonable,” “substantial,” “harm,” “avoidable” and “countervailing benefits” are rife with ambiguity and leave room for interpretation. As a professional on the ground, how do you know which practice would be considered unfair? What lessons should you draw from prior FTC enforcement actions? In our view, the best way forward is to study the FTC’s approach by closely scrutinizing its body of enforcement actions. Contracted with a data service provider without exercising due diligence in the hiring process, having appropriate contractual data security measures—such as encryption and user authentication—and reasonable auditing rights? You’ve violated Section 5. Designed a mobile system such that one application that has permission to access sensitive information provides another application that has not been given the same level of permission with access to that information (permission re-delegation)? Unfair trade or practice under the FTC Act. Made a material retroactive change to your privacy policy without consumers’ express opt-in consent? Privacy foul under the Section 5 unfairness strain.

In an article soon to be published in the Columbia Law Review, Daniel Solove and Woodrow Hartzog called this a “common law” of FTC consent decrees. Whether or not FTC jurisprudence constitutes a common law is contentious. Critics have claimed that, as an enforcement agency, the FTC should leave the development of a common law to Article III courts with their adversarial process and rules of binding precedent. They argue that rulemaking is the domain of the legislature or formal rulemaking processes. As Solove and Hartzog note, “Although the FTC has specific rulemaking authority under COPPA and GLBA, for Section 5 enforcement—one of the largest areas of its jurisprudence—the FTC has only Magnuson-Moss rulemaking authority, which is so procedurally burdensome that it is largely ineffective.” In a case currently pending before a U.S. District Court—one of only a small handful of FTC enforcement actions to reach litigation—the Wyndham hotel chain is challenging the FTC’s competence, arguing that it exceeded its bounds.

Other interesting legal questions have come up. For example, could the FTC use its unfairness authority to enforce against a practice that is made illegal by another law, which is subject to the authority of a different regulator; e.g., the Telecommunications Act of 1996? Conversely, if a practice is ostensibly covered by—but not made illegal by another law—could the FTC deem it as such under its Section 5 authority? These are not merely theoretical questions. They have come up and were litigated in another FTC case that reached the courts, FTC v. Accusearch.

We leave these weighty questions for another day. Regardless of their resolution, we are convinced that the agency, which has leveraged its Section 5 authority in privacy for two decades, will continue to take an activist stance on data governance. Thus, we focus on the substantive rules and trends that emerge from its body of law in this area. These include a steady shift away from simply preventing deception in privacy policies to a keen focus on Privacy by Design, structural and architectural choices and sound organizational safeguards. They also reflect emerging theories of privacy harm and of indirect liability. Periodically, they engage certain sectors of the data economy—recently data brokers, social networking services and the Internet of Things. Identifying these rules and trends as they emerge will help foster a culture of compliance while not overly burdening business processes and data innovation.

Editor’s Note: FTC Bureau of Consumer Protection Director Jessica Rich and Hogan Lovells Director of Global Privacy and Information Management Practice and Co-Chair of the Future of Privacy Forum Christopher Wolf will discuss FTC privacy and data security jurisprudence with IAPP Vice President of Research and Education Omer Tene and IAPP Westin Research Fellow Kelsey Finch at the IAPP Global Privacy Summit.

Written By

Omer Tene


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