Academic journal article Federal Communications Law Journal

The Battle against Breaches: A Call for Modernizing Federal Consumer Data Security Regulation

Academic journal article Federal Communications Law Journal

The Battle against Breaches: A Call for Modernizing Federal Consumer Data Security Regulation

Article excerpt

TABLE OF CONTENTS  I.    INTRODUCTION                                                   228 II.   THE CURRENT LEGAL FRAMEWORK FOR DATA SECURITY IS       NEBULOUS--BUT THE THREAT OF BREACH IS VERY REAL                230       A. U.S. Federal Circuits Are Divided on an Individual       Right of Action in the Event of a Breach                       231       B. The FTC's Vague Role as the Unofficial U.S. Data            233       Protection Agency       C. The FCC is Expanding its Role in Data Security              238       Regulation, and is Taking a More Focused Approach       Than the FTC III.  THE FTC SHOULD MOVE FORWARD WITH A SPECIFIC REQUIREMENTS       242       ENFORCEMENT MODEL SIMILAR TO THE FCC'S APPROACH       DEMONSTRATED IN COX       A. The FTC Needs to Provide Businesses with More Clarity       242       on What Data Security Practices to Adopt, and When a Breach       Should be Actionable       B. Data Breach Remedies Should Include Recourse for Consumers  245       Commensurate with the Modern Value of Personal Data IV.   CONCLUSION                                                     249 


In the United States, the years 2013 and 2014 were marked by a series of high-profile data breaches that resulted in the theft of consumer payment information from various retailers' data systems. By May 2015, data breaches were on pace to cost roughly $70 billion annually (1) in the United States. (2) While not every consumer who had their personal information stolen incurred harm due to fraudulent charges or identity theft, many consumers have become wary of which companies they choose to do business with, and some have chosen to avoid using electronic payment methods that have been compromised by hacks. (3) Companies have also suffered losses as cyber-attacks have become increasingly frequent and costly. (4) The average data breach in 2015 cost $3.79 million for the victim company, eight percent more than the year prior, as negative publicity and expensive security measures take their toll on the bottom line. (5)

Consumers who are affected by breaches have turned to the courts for recourse, but federal circuit courts are split over when an individual may recover for a data breach claim. In Remijas v. Neiman Marcus Group, LLC, the United States Court of Appeals for the Seventh Circuit held that customers have Article III standing to seek relief against a company from which the customers' data was stolen, even where the data has not yet been harmfully used (for example, via fraudulent credit card charges). (6) In contrast, the Third Circuit held in Reilly v. Ceridian Corporation that data breach plaintiffs in a separate incident lacked Article III standing to recover where the alleged harm of an increased risk of identity theft from exposure of the data was deemed to be too hypothetical and incapable of being quantified. (7)

The circuit split highlights the inadequacy of available remedies for consumers in the event of a data breach, and the lack of a regulatory scheme that sufficiently reflects the increasing value of personal data. In contrast to many other countries that have specialized data privacy agencies (DPA) to administer a national regulatory framework for data privacy, the United States has designated the Federal Trade Commission (FTC) as its "de facto federal DPA." (8) The FTC bases its data privacy authority on Section 5 of the FTC Act, (9) which establishes its power to guard against unfair or deceptive business practices. Other federal agencies claim narrower authority over the data practices of companies within their respective industries, with the Federal Communications Commission (FCC) pursuing enforcement actions over telecommunications and cable providers that suffer breaches. (10)

This Note will argue that Congress should augment the FTC's existing data security powers to preclude any challenges to the Commission's authority in that area, and to mandate a more effective framework by emulating the FCC Enforcement Bureau's approach. …

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