For years, plaintiffs in data breach class actions have argued that the threshold for Article III standing is low – and increasingly courts are accepting that argument. The Saks data breach class action, pending in the Southern District of New York, is the latest example of a federal court finding that Article III standing exists even where the plaintiff’s asserted injuries are very minimal. Continue Reading Court Ruling in Saks Data Breach Case Illustrates That Threshold for Article III Standing Is Low
The Office of Civil Rights of the Department of Health and Human Services (OCR) announced that it has entered into a settlement with a business associate that provides electronic medical records services to health care providers. The resolution agreement requires Medical Informatics Engineering, Inc. (MIE) to pay $100,000 and adhere to a corrective action plan. Under the corrective action plan, MIE must conduct a security risk assessment and implement a security risk management plan under OCR supervision.
The breach giving rise to the settlement resulted from a compromised user name and password that allowed hackers access to the electronic protected health information of 3.5 million people. The information compromised included names, addresses, dates of birth, Social Security numbers, e-mail addresses, clinical information, and health insurance information. As required by HIPAA, MIE itself reported the breach. OCR investigated and found that MIE had failed to conduct an accurate and thorough security risk analysis.
The resolution agreement does not provide details about OCR’s evaluation of the situation, but the settlement suggests that OCR did not find MIE’s violation to be particularly blatant and that it paid more attention to the nature of the breach than to its impact. On the basis of the information revealed and the numbers affected, the penalty could have been much larger. Under OCR guidance, the minimum penalty that applies (when even reasonable diligence would not have prevented the breach) would be calculated based on $100 per violation. With 3.5 million individuals affected, that would come to $350 million.
That amount does not take into account the maximum limit that applies for each type of violation. In this case, only one type of violation was identified, so the cap is easy to figure. Under the rules that applied prior to the new guidance issued a few weeks ago, all penalties were capped at a total of $1.5 million for each type of violation, so we might have expected that to be the penalty. However, under the new guidance, penalties are reduced where the violations are less blameworthy. The $100,000 penalty in this case matches the maximum penalty for a violation that is due to reasonable cause.
Without a more detailed understanding of the facts, it is not possible to determine whether the reasonable cause limitation was applied or appropriate in this case, but the result suggests that the new caps may influence sanctions that OCR will seek in at least some HIPAA enforcement actions.
In April 2019, the California Assembly Privacy and Consumer Protection Committee rejected a proposal known commonly as the “Privacy for All Act” (AB-1760), which among other things would have provided a private right of action for all violations of the California Consumer Privacy Act (CCPA). The rejection of AB-1760 was a blow to consumer privacy advocates. A similar measure, SB-561, would also have provided a private right of action for all privacy violations. That bill has also been defeated, meaning that the CCPA’s private right of action provisions will not be expanded this year. Continue Reading Proposed Expansion of CCPA’s Private Right of Action Defeated in State Senate
Following the speedy enactment of the California Consumer Privacy Act (CCPA or Act) in June 2018, business and consumer advocates alike have been pressuring California lawmakers to clarify the many ambiguities raised by the Act’s sweeping requirements. California lawmakers recently responded to these calls for greater clarity by proposing a slate of amendments to address some of the more controversial provisions of the CCPA, including the definition of “personal information”, requirements regarding information sharing, and the scope of industry exemptions. Continue Reading Proposed Amendments to the California Consumer Privacy Act May Limit Scope of the Act
After a quiet winter, the Department of Health and Human Services’ Office for Civil Rights (OCR) revived with the spring, issuing a set of frequently asked questions and two recent announcements.
The FAQs address the situation where an individual requests a covered entity to disclose protected health information (“PHI”) to an app. The covered entity must generally comply with the request, even if the app is unsecured. It may be prudent to advise the individual of concerns about the app, but the individual has the right under HIPAA to access most PHI held by a covered entity set and to direct where the covered entity should send that information.
In case of unauthorized access to PHI that has been transmitted to the app, the liability of a covered entity, or an electronic health records (“EHR”) developer acting as a business associate for the covered entity, will be determined by the relationship with the app. If, for example, there is no relationship with the app developer and the app does not perform functions on behalf of the covered entity, the FAQs provide comfort that the covered entity, and EHR developer, will not be exposed to penalties under HIPAA in the event of unauthorized access to PHI that has been transmitted to the app.
Conversely, if a relationship exist, for example, the app developer serves as a business associate of the EHR developer or the app is performing functions for the covered entity, the EHR developer and covered entity may be exposed to liability. Covered entities should consider building appropriate contractual protections into their business associate agreements to safeguard against such liabilities.
Within two weeks of publishing the new FAQs, the OCR issued a notification that it is reducing the maximum penalties that will apply to certain types of HIPAA violations. For penalty purposes, the OCR breaks HIPAA violations into four categories based on the severity of the violation. Prior to the new guidance, only the minimum penalty per violation increased with severity. The maximum penalty that could be imposed was the same for each category: $1.5 million for any type of violation per year. Under the new guidance, the maximum remains at $1.5 million for the most serious category of violations, but is lowered significantly for other types of violations. Going forward, the maximum penalty will be:
- Where the entity did not know and by exercising reasonable diligence would not have known of the violation, $25K per type of violation per year.
- Where the violation arises from reasonable cause, $100K per type of violation per year.
- Where the violation arises from willful neglect and is corrected, $250K per type of violation per year.
- Where the violation arises from willful neglect and is not corrected, $1.5M per type of violation per year.
However, the reduction in the maximum penalties does not necessarily translate to a significant reduction in what the OCR will seek in enforcement actions, at least not with respect to the resolution agreements that the OCR has historically announced. Those resolution agreements typically pertain to situations where the OCR finds serious, uncorrected violations, often of more than one type.
One week after this notification, the OCR seemed to signal that it will continue to seek large settlement amounts when it followed the notice of penalty reductions with an announcement of a $3 million settlement with Touchstone Medical Imaging, LLC for violations that exposed the PHI of more than 300,000 patients. Although the OCR reached this resolution agreement prior to issuing its notice of the reduction in penalties, it is unlikely that the reduction would have made any difference with regard to the Touchstone breach, where the OCR found several HIPAA violations, including issues with the timing and thoroughness of the health care provider’s investigation of the incident, which in turn led to a delay in its provision of notice of the breach to affected individuals.
The practical changes that will come from the reduction in penalties remain to be seen. Covered entities and their business associates under HIPAA may take comfort that relatively minor violations that are quickly addressed will not result in multimillion dollar liabilities, but based on past settlement announcements, it seems unlikely that the OCR would enforce the HIPAA requirements so harshly. On the other hand, it appears as if the OCR will continue to seek substantial monetary penalties for significant, uncorrected breaches.
The Denmark Data Protection Authority (DPA) ruled on April 11, 2019 that affirmative consent is required when companies record customer telephone calls. Because voice recordings constitute personal data under the European Union’s (EU) General Data Protection Regulation (GDPR), international companies that communicate via telephone with EU customers will need to take steps to ensure GDPR compliance.
In this case, Denmark’s largest telecommunications company, TDC A/S, provided disclosures to its customers that calls may be recorded for training purposes, but the company offered no mechanism for customers to opt-in or opt-out of the recording. During one such call, the customer requested that the call not be recorded, but the service agent said there was no way to turn off the recording. The Denmark DPA rejected the company’s arguments that its recording practices served a legitimate interest, such as the improvement of its customer service, and concluded that the company’s telephone recording practices violated the GDPR. Continue Reading Denmark DPA Rules on How GDPR Applies to Voice Recordings
Recently, legislators in Texas introduced two bills relating to consumer privacy and data protection: H.B. No. 4518, the Texas Consumer Privacy Act (“Texas CPA”) and H.B. No. 4390, the Texas Privacy Protection Act (“TPPA”). These bills bear a strong resemblance to the California Consumer Privacy Act (the “California CPA”), and would lay the groundwork for extensive administrative schemes protecting consumers’ rights to their personal information.
The Texas CPA bears strong similarity to California CPA. The Texas CPA, which, if adopted, would take effect September 1, 2020, applies to companies that do business and collect consumer data and:
- Derive at least 50% of their annual revenue selling consumers’ personal information; or
- Exceed $25 million in gross annual revenue (with that amount subject to adjustment by the Texas Attorney General every two years); or
- Buy, sell, or receive the personal information of at least 50,000 consumers, households, or devices for commercial purposes
- The Texas CPA would also apply to entities owned by companies that would be subject to the law. Similar to the California CPA, the Texas CPA contains express provisions governing rulemaking, implementation, and enforcement of the law. Notably, the legislation highlights various consumer rights, including (but not limited to):
- A consumer’s right to disclosure, from the business, of the personal information the business collected.
- A consumer’s right to deletion of the personal information that the business collected (with some limited, specific exceptions).
- A consumer’s right to opt out of the sale of his or her personal information.
Utah Governor Gary Herbert is expected to sign a new privacy law in the coming weeks that will make his state the first to protect private electronic data stored with third-party providers from government access without a warrant.
Under the legislation passed unanimously by the Utah Legislature earlier this month, law enforcement agencies need a warrant to obtain information about an individual from wireless communications providers, email platforms, search engine providers, or social media companies.
While much of the focus over the past two years has been on laws to protect consumer privacy rights, protecting private information from disclosure to law enforcement has also generated attention. Traditionally, the general rule followed, on both the federal and state levels, has been that law enforcement agencies can access information through third-party providers because individuals have no reasonable expectation of privacy when they share their personal information with third parties. Continue Reading Utah Privacy Law Would Be First to Require Search Warrant for Government to Access Stored Data
On March 20, 2019, the Supreme Court refused to address the adequacy of a $8.5 million Google privacy class action settlement and instead remanded to a lower court to determine whether the class action plaintiffs had standing to assert a claim under the Stored Communications Act (“SCA”). The Court’s holding serves as a reminder that despite the recent trend in finding standing for privacy violations, it can still be an open issue.
Frank v. Gaos arose out of Google’s use of “referrer headers,” whereby Google allegedly transmitted users’ search terms to the servers that hosted the webpages the users selected as a result of the searches. Plaintiffs alleged that Google’s transmission of users’ search terms violated the SCA, which prohibits an entity providing an electronic communication service to the public from “knowingly divulg[ing] to any person or entity the contents of a communication while in electronic storage by that service.” After lengthy motion practice, Google agreed to pay $8.5 million, most of which would be distributed to six non-profit cy pres recipients selected by class counsel and Google to “promote public awareness and education, and/or to support research, development, and initiatives, related to protecting privacy on the Internet.” Five class members objected to the settlement on several grounds relating to fairness.
During the pendency of the class action and settlement, the Supreme Court issued its 2016 ruling in Spokeo, Inc. v. Robins, which held that Article III standing requires a concrete injury even in the context of a statutory violation. However, when the objecting class members’ appeal reached the Supreme Court, no party made any arguments relating to standing. Nonetheless, the Solicitor General filed a brief as amicus curiae urging the Supreme Court to vacate and remand for the lower courts to address standing under the Spokeo standard. The Supreme Court ordered supplemental briefing on the issue and ultimately remanded for the lower courts to do just that, emphasizing that its opinion should not be interpreted “as expressing a view on any particular resolution of the standing question.” Justice Thomas filed a lone dissent to the per curiam opinion, arguing that “[b]y alleging the violation of ‘private dut[ies] owed personally’ to them ‘as individuals,’ the plaintiffs established standing.”
Over recent years, the trend among lower courts and state supreme courts has been to find standing for privacy violations even where the plaintiff did not sustain actual damage beyond a violation of his or her statutory right. Although the Court did not express a view on whether standing exists for such a claim under the SCA, its holding demonstrates—to plaintiffs, defendants, state legislatures, and Congress—that the issue of statutory standing in privacy cases has not been resolved.
The FTC has proposed amendments to its 2003 Safeguards Rule and the 2000 Privacy Rule, applicable to financial institutions under the Gramm Leach Bliley Act (GLBA). The proposed changes are informed by the FTC’s enforcement experience and are intended to keep pace with technological developments. Continue Reading FTC Seeks Comment on Proposed Amendments to Safeguards and Privacy Rules