Data Breach Planning for Small Businesses

Many of the top stories last year related to data breach – from the Target breach during the Christmas Shopping Season (Dec. 2013: Prior Post, Small Business Magazine article; additional news coverage) to the UPS Store data breach during the summer (Aug. 21, 2014) to, more recently, the intentional hacking of Sony Pictures' servers (Nov. 24, 2014) and Staples' data breach (Dec. 19, 2014).
It would be easy to believe that data security breaches happen only to large organizations, but such a belief would be mistaken. In the last year, a number of smaller companies have experienced breaches of the records they maintain. These can occur in at least two ways – 1) they may be the third-party vendor through whom hackers invade a larger company like Target or Home Depot; or 2) they use a third-party vendor who experiences a breach that impacts the smaller company's customers.

Using Small Businesses as Door Opener

In the case of Target, for instance, the initial open door to Target's point-of-sale system came through a third-party vendor – an HVAC company that had legitimate access to Target's systems for purposes of billing, contract submission and project management. Michael Riley, Ben Elgin, Dune Lawrence and Carol Matlack, "Missed Alarms and 40 Million Stolen Credit Card Numbers: How Target Blew It," Bloomberg Business Week, Mar. 13, 2014.

The hackers used stolen login credentials from this HVAC company to gain access to Target's systems. The end result? More than 40 million credit card numbers were breached, and over 70 million records containing personally identifiable information ("PII") were stolen. Sara Germano, Robin Sidel and Danny Yadron, "Target Faces Backlash After 20-Day Security Breach," Wall Street Journal, Dec. 19, 2015 (subscription may be required).

This breach occurred despite Target's investment in a $1.6 million security system. See
Riley Article.

A similar breach – using stolen passwords from a third-party vendor who provided services to Home Depot – happened in November 2014 that resulted in information about more than 50 million of Home Depot's customer accounts being breached. Ben DiPietro, "Retailer Breaches Put Spotlight on Vendor Contracts," Wall Street Journal Risk & Compliance Blog, Nov. 12, 2014.

Breaches Affecting Small Business's Customers Because of a Vendor's Breach

More locally, in September of 2014, local news reported that more than two dozen restaurants in the Bucks County area were hacked through their use of a common payment card system. Many of these restaurants were of the hoagie/sandwich shop size.

Most Common Sources of Data Breach

According to a recent study by the Ponemon Institute, the most common "root causes" of data breach are (some of these may overlap):

• Malware – 44%
• Trusted insider (inadvertent) – 30%
• Hacker – 27%
• SQL Injection – 26%
• Password compromise – 24%
• Targeted attack – 19%
• Trusted insider (malicious) – 15%
• Lost, stolen or hijacked device – 12%

Ponemon Institute Research Report, "2014: A Year of Mega Breaches," at 11, Jan. 21, 2015.

Lessons Learned Moving into 2015
The lesson here is NOT to ignore the potential for data breach based on an assumption that your company is too small for it to happen to you. Indeed, sometimes small companies have the "keys to the kingdom" to allow a malicious actor to gain access to a larger pool of data – and the smaller company may not have a large budget for data security.

However, it is critical to start planning for the possibility:

1) Develop an incident response plan that is appropriate for your business. Cover both paper and electronic data in your plan – loss of either can constitute a "breach" depending upon the specific law that applies. Involve key stakeholders in your planning.

 

2) Examine how you use data and where they are stored. Ask a key question: Do you need to keep those data? If not, destroy them securely (some states have data destruction laws with which you need to comply – see prior post). Do not hold onto sensitive data "just in case" you may need it later – these data can actually cause more problems if you do not actually need them.

 

3) Work with your IT department (or outside consultant) to ensure that your internal systems do not permit outsiders to gain unauthorized access, and lock them down if they do.

 

4) Work with your attorney to put any protective policies into place (such as incident response plans, BYOD or document retention policies) to make sure your procedures match your expectations.

 

Most importantly, it's not "if" a breach will occur – it's when, and how bad it will be. Prepare now, and perhaps you can reduce the impact.

Moving to WordPress

I am very pleased to announce that The Privacy and IP Law Blog is in the process of moving to WordPress, and to a dedicated domain – PrivacyandIPLawBlog.com!  The blog will operate on both the Blogspot.com location and on the new location for a few months while all the kinks are worked out.  Ultimately, the RSS Feed and subscriber links will also move to WordPress.

Why the switch?

Well, for the past year or so, my traditional way of blogging (writing the material offline, double-checking all of the hyperlinks before publication, then posting in draft form, etc.) has been disrupted by some updates within MS Word that appear to now make it impossible to publish offline to a Blogger.com blog.

Specifically, I can no longer write the posts in Word and update them to the blog for further editing and customization, which has required online access more consistently in order to publish (not always easy when traveling!).  I’ve attempted to find fixes or patches to this issue – but it appears even though this concern is somewhat common, there is no fix.  The discussion boards are rich with complaints about this recent modification to the interactivity between Blogger (owned by Google) and MS Word (owned by Microsoft) – with no remedies.

As a result, my ability to post in a streamlined, time-efficient way has been disrupted.

Hence, fewer posts.

So, after researching for the past few months to find an alternative, I’ve decided to register my own domain and host it through WordPress.  We’ll give this a try for a while and see how it goes.  With any luck, I’ll be able to write more frequently, without as many administrative headaches, and keep this a robust site.

Thanks for coming along for the ride!

LinkedIn Sued for Providing “Trusted References” to Paying Subscribers

On October 9, 2014, a class action complaint was filed in the U.S. District Court for the Northern District of California alleging that LinkedIn violated the Fair Credit Reporting Act, 15 U.S.C. § 1681 et seq., (“FRCA”) by offering to subscribers reports containing “Trusted References” without complying with the FCRA’s requirements to keep the data safe from disclosure. Sweet v. LinkedIn Corp., Civ. A. No. 5:14-cv-04531 (N.D. Cal. filed Oct. 9, 2014) (available at Law360 - subscription required).

Specifically, the complaint alleges that LinkedIn: 1) failed to comply with the certification and disclosure requirements of the FRCA for credit reporting agencies who furnish consumer reports for employment purposes; 2) failed to maintain reasonable procedures to limit the furnishing of consumer reports for the purposes enumerated in the FRCA and to assure the maximum possible accuracy of these reports; and 3) failed to provide the notices required by the FRCA to users of the consumer reports.  Id. at 2.  Plaintiffs seek both damages for past violations and injunctive relief to prevent the continued misuse of these reports in violation of the FRCA.  Id. 

These “reference reports” compile information about “people in your network who can provide reliable feedback about a job candidate or business prospect” – including a list of others in your network who worked at the same company as the job candidate during the same time period.  Id. at 7 (citing LinkedIn’s Premium Help Center); see also Trusted References for Job Candidates (last updated 4/21/14); Reference Search (last updated 11/27/13).  In addition, these reference reports encourage the potential employer to contact these references either through a formal Introduction or through inMail – both of which are communication methods available to LinkedIn members.  Compl. at 7.

Notably, LinkedIn users are not notified when a potential employer requests one of these reference reports about them.  Id. at 8.  As a result, the complaint concludes:  “any potential employer can anonymously dig into the employment history of any LinkedIn member, and make hiring and firing decisions based upon the information they gather, without the knowledge of the member, and without any safeguards in place as to the accuracy of the information that the potential employer has obtained.”  Id.

In essence, the complaint alleges that LinkedIn has “created a marketplace in consumer employment information, where it sells employment information, that may or may not be accurate, and that it has obtained in part from unwitting members, and without complying with the FRCA.”  Id. at 9.  In all, the complaint alleges five counts of FRCA violations, seeks damages and injunctive relief, and seeks a jury trial.

Next Steps

LinkedIn has the option of answering the complaint or making any one of a number of 12(b) motions to challenge the sufficiency of the complaint.  It may take some time before this issue is ripe for decision (any decision) by the court.

Is Your Company Subject to Laws Regulating Safe Destruction of Documents?

Many companies have document retention policies – in other words, policies determining how long they will keep certain kinds of documentation.  These policies also frequently cover when documents may be destroyed in the normal course of business.  (Assuming, of course, that no litigation is pending and that there is no other reason why the company would be legally obligated to keep these documents.)  It’s almost a business necessity these days given the cost of document storage.

It is also a fairly safe bet that by now, most people have heard about the potential risks associated with data breaches, or at the very least, have heard about the Target data breach during the holiday season in 2013.

However, did you know that many states regulate how personal information can be destroyed?  Or, more specifically, how documents and records that contain such personal information may be discarded?  To date, at least thirty-one states have enacted laws like this (the link attached omits the Delaware law that was just enacted).

Leaving aside the specific rules and regulations relating to the protection from disclosure of personal health information (e.g., HIPAA, HITECH, etc.), many states mandate that business records containing personal information of a consumer (including, perhaps, the business’s employees, too) may only be discarded by “shredding, erasing or otherwise destroying or modifying the personal identifying information in those records to make it entirely unreadable or indecipherable through any means . . . . ”  E.g., 6 Del. Code §§ 50c-101 through 50c-104 (enacted July 1, 2014 – effective as of Jan. 1, 2015); N.J. Stat. Ann. 56:8-162 (same methods, adding “or nonreconstructable through generally available means” at the end); see also N.J. Stat. Ann. 56:8-161 (for applicable definitions).

In Illinois, the law is even more specific.  It requires documents containing personal information to be “redacted, burned, pulverized or shredded” if the documents exist in paper form, or “destroyed or erased” if they are electronic files.  815 ILCS 530/40.  In both cases, these methods are recommended to ensure that the “personal information [contained in the document] cannot practicably be read or reconstructed.”  Id.

In general, this means that you cannot simply throw out old records that contain personal information of a customer (or, perhaps, even an employee) by throwing it in the trash, or setting it aside for recycling.  They have to be handled appropriately.  (Note that some commercial vendors offering shredding services can ensure that the shredded material is handled in an environmental-friendly manner.)

Many of these statutes also carry penalties – whether in the form of government fines or in civil remedies to the consumers whose personal data have been compromised.  For instance, Illinois’ statute provides that any violation of the document destruction law automatically constitutes a violation of the state’s unfair business practices act (which has its own penalties) and is subject to civil penalties, payable to the state Attorney General, of at least $100 per individual whose information has been improperly destroyed, but not more than $50,000 total.  Id. 

In Delaware, not only can the Attorney General seek penalties from any “commercial entity that does not take all reasonable steps in disposing of a customer’s personal identifying information,” but any consumer who has suffered actual damages as a result of this violation of this statute can sue the responsible commercial entity.  6 Del. Code § 50c-103(b).  In these cases, courts are permitted to treble (triple) the damages awarded.  Id.

So, here’s the lesson – if your company (whether a for-profit or not-for-profit entity) creates, maintains or discards personal information owned by a customer, check to see whether one of these state records destruction laws applies to your operations.  If your company operates in more than one state, dig deeper and check all relevant states.  Find out if there are “records destruction laws” that apply to your company and read them carefully.  Some have different requirements, and some are more stringent than others. 

Complying with these laws may also have the added benefit of helping your company avoid, or at least minimize, the significant losses associated with an unfettered data breach.

ABA IPL Publishes White Paper on Online Piracy and Counterfeiting

On July 7, 2014, the ABA Intellectual Property Law (IPL) Section released its comprehensive white paper, outlining the results of its research and analysis of continuing concerns about online pirates and counterfeiters based overseas.  The white paper coins a term to describe the malfeasors:  Predatory Foreign Websites.

More information about the white paper, including a summary of the conclusions and recommendations it makes, can be found in its Press Release and in the copy of the White Paper available on the ABA IPL Section’s site.