Companies should already know how to protect data, FTC argues

Previous settlements, public statements are clear on what's expected, agency says in dispute with LabMD

The Federal Trade Commission (FTC) has published enough information publicly for companies to know exactly what the agency considers reasonable security practices for protecting sensitive data, an FTC representative said in deposition entered this week in a closely watched case challenging its authority to enforce data security standards.

"The [FTC] has published a great deal of consumer and business education on the issue of what is reasonable data security," Daniel Kaufman, the deputy director for the FTC's Bureau of Consumer Protection, said in deposition before an FTC administrative court. "The Commission has testified on it on a number of occasions, and there's a lot of other publicly available information on what constitutes reasonable data security."

The deposition involves a dispute between the FTC and LabMD, an Atlanta-based medical laboratory that claims it was driven out of business by an FTC data breach investigation.

The FTC last August filed a formal compliant against LabMD over data leaks dating back to 2008 that exposed personal information on close to 10,000 people. In its complaint, the FTC charged LabMD with unfair trade practices for not doing enough to protect data.

Over the past few years, the agency has filed similar complaints against dozens of companies that suffered data breaches and has won settlements from almost all of them.

LabMD, however, challenged the FTC complaint and accused the agency of holding it to data security standards that do not exist officially at the federal level. The only other company to challenge the FTC so far is Wyndham Hotels, which has argued that the agency has no legal authority to enforce data security controls on companies.

Both cases are widely seen as a test of the FTC's authority to punish companies that suffer data breaches. Many have expressed concern that the FTC may be overstepping its authority in going after breached firms.

Groups like the Chamber of Commerce, TechFreedom, the American Hotel and Lodging Association, the National Federation of Independent Businesses and the International Franchise Association have all filed briefs in support of Wyndham, while government watchdog Cause of Action represents LabMD in the dispute.

In response to the LabMD motion, the FTC argued that it was not obligated to disclose the standards it uses to judge whether a company has adequate controls or not. However, in a setback for the agency, the FTC's chief administrative judge earlier this month held that the agency could indeed be compelled to disclose the standards.

It's unclear how the administrative judge will view Kaufman's rationale for the agency's actions.

In response to questions, Kaufman repeatedly noted that while the FTC may not have spelled out what exactly it expects companies to do, the agency has released enough information through speeches, blog posts, flyers and other means for companies to get an idea of security best practices. For example, though the agency has not specifically stated that it expects companies to do penetration tests, it has made it clear that such tests are a best practice.

"The Commission has, through all the materials I've mentioned, said that companies need to use readily available measures to identify reasonably known security risks, and one of the methods of doing that would be penetration tests," he said. However, a determination of whether a company erred in not doing a penetration test is typically determined on a case-by-case basis, he said.

Kaufman said companies trying to determine the FTC data security expectations could also easily get that information from previous settlement agreements between the agency and breached entities.

A spokesman for Cause of Action was quick to point out that Kaufman's testimony shows that the agency's enforcement actions are based on no specific standard.

The fact that the FTC is pointing to things like blog posts, press releases, website postings and flyers as sources is significant, he said. "Essentially, the standard is a random conglomeration of "no clear standard" and Kaufman repeatedly says it's a case-by-case basis. If anything, it shows that a company would have no idea what the standard is" he said in emailed comments.

Jaikumar Vijayan covers data security and privacy issues, financial services security and e-voting for Computerworld. Follow Jaikumar on Twitter at @jaivijayan or subscribe to Jaikumar's RSS feed. His e-mail address is

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Copyright © 2014 IDG Communications, Inc.

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