Info Law Group : Technology Lawyers & Attorneys : Information Law Group : Privacy, Security & Intellectual Property Law

Factual Allegations

The FTC alleged in its complaint that Google violated Section 5 of the FTC Act by engaging in deceptive tactics and violating its own privacy promises to consumers in connection with the launch of the company’s social network, Google Buzz, in 2010. The FTC also alleged that with respect to the data of its European users, Google violated the Notice and Choice principles of the U.S.-EU Safe Harbor self-regulatory framework for cross-border data transfer, in violation of the company’s certification of adherence to the framework.

The FTC alleged that when Google launched Buzz, the company used its customers’ email contact lists to populate the social network. As a result, by default, when Buzz launched, Gmail users became social network “followers” of other users – including those in their email contact lists – and were “followed” by their contacts. While Google's set-up process appeared to provide users with choices not to enroll in Buzz (such as “Nah, go to my inbox” and “Turn off Buzz”), the FTC alleged that selecting those options did not actually opt the users out of Buzz.. Instead, users continued to be followers of and followed by other Gmail users. Gmail users complained that the automatic generation of follower lists resulted, in some cases, in users following and being followed by individuals against whom they obtained restraining orders, abusive ex-spouses, clients of mental health professionals and attorneys, and job recruiters.

The FTC also alleged that Google did not adequately inform users that their previously private information, such as their contact lists and profiles, would become public by default when they used Buzz. According to the FTC, Goggle did not provide clear means for users to change privacy settings to prevent the public disclosure of this information.

The FTC further alleged that the launch of Buzz resulted in the disclosure of personal information that was contrary to the users’ specific choices. For example, if a Gmail user blocked another individual from Google Chat, that individual could still be a follower of the user on Buzz. Further, Buzz users did not have the ability to block followers who did not have a public Google profile. Finally, a flawed design of the Buzz comment reply mechanism resulted in broad disclosure of users’ private email addresses.

Violations of the FTC Act

The FTC alleged that that Google’s handling of privacy settings in connection with the launch of Buzz (as described above) violated the company’s own privacy notices and Section 5 of the FTC Act prohibition against unfair or deceptive acts or practices. Specifically, according to the FTC, Google:

• By using Gmail information to populate Buzz -- failed to abide by the pledge in the company’s privacy policy to use information from consumers signing up for Gmail only for the purpose of providing them with a web-based email service;

• By using Gmail information in connection with Buzz -- failed to abide by the pledge in the company’s privacy policy to seek users’ consent to use their information for a purpose other than that for which the data was collected; and

• By not respecting user’s privacy choices (such as “Nah, go to my inbox” and “Turn off Buzz”), and misleading users about what information in their profiles would become public and which of their contact lists would become public  in connection with Buzz – engaged in deceptive acts or practices.

U.S.-EU Safe Harbor Framework Violations

The Google Buzz settlement is the FTC’s first substantive U.S.-EU Safe Harbor framework enforcement action in which the Commission alleged specific violations of the Safe Harbor privacy principles. On several previous occasions, the FTC took enforcement action against companies that claimed to be Safe Harbor certified but were not in fact members of the program. Google maintained an up-to-date Safe Harbor self-certification on the U.S. Department of Commerce Safe Harbor list and stated in its privacy policy that it adhered to the Safe Harbor privacy principles.

The Safe Harbor framework consists of a set of privacy principles developed by the U.S. Department of Commerce in collaboration with the European Commission. The framework is intended to provide U.S. companies with a mechanism for receiving personal information from the European Union, European Economic Area or Switzerland in compliance with the European Commission’s Data Protection Directive 95/46/EC and the Swiss Federal Act on Data Protection. U.S. companies that participate in the Safe Harbor framework are deemed by the European Commission and the Information Commission of Switzerland to provide an “adequate” level of privacy protection, enabling the certified U.S. companies to receive and process European data in the U.S.

Among other provisions, the Safe Harbor privacy principles require companies that receive European personal data in the U.S. to give the individuals to whom the information pertains:

• Notice of how the company uses their personal information (the Notice principle);

• Choice to direct the company to refrain from sharing the information with certain third parties (the Choice principle); and

• The opportunity to opt out of having their information used for purposes incompatible with those for which the information was collected or to which they have consented (also the Choice principle).

In practice, a Safe Harbor-certified company in the U.S. that wishes to use or disclose personal data of European residents for purposes incompatible with the purposes for which the information was collected or to which the users have consented, must (i) provide users with a notice of the proposed new use or disclosure, and (ii) give users an opportunity to direct the company not to use or disclose the information in the proposed manner.

The FTC alleged that Google relied on its Safe Harbor certification to transfer data collected from Gmail users from Europe to the United States for processing. According to the FTC, the company also processed this information in connection with the launch of Buzz. The complaint alleged that Google violated the Notice and Choice principles by not giving European users notice before using their Gmail information in connection with Buzz. Google’s alleged non-compliance with the Safe Harbor Notice and Choice principles constituted a deceptive act or practice in violation of Section 5 of the FTC Act.  

Settlement

The FTC has billed this enforcement action as a “tough settlement that ensures that Google will honor its commitments to consumers and build strong privacy protections into all of its operations.” The settlement includes several major requirements.

Prohibition Against Misrepresentations

The settlement prohibits Google from misrepresenting the company's privacy practices with respect to “covered information” or the company’s compliance with any privacy, security or other compliance program, including the U.S.-EU Safe Harbor framework. Importantly, the term “covered information” is broader than the term “personal information” that the FTC has used in its previous privacy enforcement consent orders. “Covered information” includes not only the traditional personal information elements (e.g., name, postal or email address, and telephone number), but also an IP address or an individual’s physical location or list of contacts. The broader definition of “covered information” is consistent with the FTC’s increasingly expansive view of the information associated with an individual that warrants protection. For example, in its report on Self-Regulatory Principles For Online Behavioral Advertising: Tracking, Targeting, and Technology, the FTC refused to provide a bright line rule for delineating personal and non-personal information. Instead, the FTC took the position that behavioral advertising principles "should apply to data that could reasonably be associated with a particular consumer or computer or other device, regardless of whether the data is 'personally identifiable' in the traditional sense." Similarly, the FTC’s report on “Protecting Consumer Privacy in an Era of Rapid Change, A Proposed Framework for Businesses and Policymakers ("Privacy Report"), argued for protecting consumer data that can reasonably be linked to a specific consumer, computer or device.

Notice and Consent

The settlement requires Google to provide its users with notice and choice prior to sharing users’ information with third parties in certain circumstances. Specifically, if the proposed disclosure is contrary to the data sharing practices Google represented to be in effect at the time the information was collected, the settlement requires Google to give users a clear and prominent notice of the proposed disclosure and to obtain their “express affirmative consent.” While the settlement does not define “express affirmative consent,” at a minimum, this provision will require Google to offer users a prominent, transparent means for exercising their privacy choices. 

Comprehensive Privacy Program

The FTC stated that the Buzz settlement is the first to require a company to implement a comprehensive privacy program to protect the privacy of consumers’ information. The inclusion of his requirement in the settlement appears to be the first application of the “privacy by design” philosophy that the Commission articulated in its Privacy Report. The FTC’s “privacy by design” approach calls on companies to build privacy protections into their business practices. Such protections should include sound mechanisms for allowing consumers to exercise their privacy choices, reasonable security for consumer data, limited collection and retention of consumer data, secure disposal of the data, and reasonable procedures to promote data accuracy. The report also called for companies to implement and enforce procedurally sound privacy practices throughout the organizations, including by assigning personnel to oversee privacy issues, training employees and conducting privacy reviews for new products and services.

The settlement requires Google to maintain a written, comprehensive privacy program that is reasonably designed to (i) address privacy risks related to the development and management of new and existing products and services, and (ii) protect the privacy and confidentiality of covered information (as defined above). Goggle must include in its privacy program the privacy controls and procedures appropriate to the company's size and complexity, the nature and scope of its activities, and the nature of covered information.

Specifically, the settlement requires Google to:

• Designate staff responsible for the privacy program;

• Conduct a risk assessment to identify reasonably-foreseeable risks that could result in the unauthorized collection, use, or disclosure of covered information and assess the sufficiency of any safeguards in place to control these risks;

• Design and implement reasonable privacy procedures to control the risks identified through the privacy risk assessment;

• Regularly test or monitor the effectiveness of the program’s key privacy controls and procedures;

• Develop and use reasonable steps to select and retain service providers capable of appropriately protecting the privacy of covered information they receive from Google;

• Require relevant service providers by contract to implement and maintain appropriate privacy protections; and

• Evaluate and adjust the company's privacy program in light of the results of the testing and monitoring, any material changes to the company's operations or business arrangements, or any other circumstances that may have a material impact on the effectiveness of the company’s privacy program.

Compliance Requirements

In addition to the specific requirements regarding the company’s privacy practices, the settlement mandates a compliance and reporting program, including biennial assessments and reports from a qualified, objective and independent third-party professional. The reports must certify, among other things, that:

• Google has in place a privacy program that provides protections that meet or exceed the protections required by the settlement order; and

• Google’s privacy controls are operating with sufficient effectiveness to provide reasonable assurance that the privacy of covered information is protected.

Google must retain the materials relied upon to prepare the third-party assessments for a period of three years from the date of the assessment. 

The settlement also requires Google to:

• Retain all “widely disseminated statements” that describe the extent to which the company maintains and protects the privacy and confidentiality of any covered information, along with all materials relied upon in making or disseminating such statements, for a period of three years;

• Retain for a period of six months (i) all consumer complaints directed at Google, or forwarded to Google by a third party, that allege unauthorized collection, use or disclosure of covered information and (ii) any responses to such complaints;

• Retain for a period of five years documents that contradict, qualify or call into question the company’s compliance with the terms of the settlement;

• Disseminate the consent order to the company’s current and future principals, officers, directors and managers, and to all current and future employees, agents and representatives who have supervisory responsibilities relating to covered information; and

• Notify the FTC of changes in the company’s corporate status.

Action Item

As we often note on this blog, privacy enforcement activity is rising exponentially, whether in the format of state and federal regulatory actions, class action suits, media exposés or public admonitions by regulators. This enforcement activity presents a significant risk to companies whose business models rely heavily on the collection, use or disclosure of information associated with individuals. If your company has not already done so, now is the perfect time to review the company’s privacy and information security practices, conduct a privacy and information security assessment, and take steps to ensure that the company’s practices comply with the various privacy and information security requirements, including FTC guidance.

What kinds of entities does the Act apply to?

The Act defines “covered entities” to mean any person engaged in interstate commerce that collects or stores data containing covered information or sensitive information.  However, section 601 of the Act limits the application of the Act to only those persons over which the Commission has authority pursuant to section 5(a)(2) of the FTC Act (Note:  this section previously indicated that the Act applied to all persons engaged in interstate commerce [which is in the definition of covered entity]; the error was noted by a reader and the correction made here). Covered entities do not include any divisions of Federal or state government or some entities that meet specified criteria (e.g. store less than 15,000 records; collect less than 12,000 records in a year, etc.; see definition of “covered entity” for more detail).

Observations:  Significantly, it does not appear that the definition of covered entity makes the traditional distinction between data owner/controller and service provider/processor. As such, service providers may be directly subject to the Act as a result of collection or storage of covered/sensitive information on behalf of their customers.

What kinds of information does the Act regulate?

The Act regulates “covered information” and “sensitive information.”

“Covered information” includes such information elements as first name or initial and last name, postal address, email address, telephone/fax number, government issued identification numbers (e.g. tax ID, driver’s license number, etc.), financial account numbers, credit/debit card number, access codes/passwords, “unique persistent identifiers” used to collect, store or identify information about a specific individual or create a profile (e.g. customer numbers, IP addresses, unique pseudonym), and any information collected, stored, used or disclosed in connection with the foregoing information. Section (B) of the definition also lists a number of important exclusions concerning certain business-related information.

“Sensitive information” means information associated with covered information of an individual that relates directly to the individual’s medical history or health, race or ethnicity, religious beliefs/affiliations, sexual orientation/behavior, financial information (income, assets, liabilities, etc.), a person’s geolocation information, unique biometric information or social security number.

Observations: The definitions of information regulated under the Act go well beyond any U.S. definition of personally identifiable information. For example, the “traditional” definition of PII normally requires first name and last name combined with additional information such as financial account numbers. The definition of “covered information” in the Act does not require such a combination – each data element stands on its own and may not need to be tied to or identify a specific person. If I, as an individual, had an email address that was wildwolf432@hotmail.com, that would would appear to satisfy the definition of covered information even if my name was not associated with it.

The definition of “sensitive information” echos similar definitions under the EU Data Protection Directive and other laws based on an EU Model. Interestingly, however, it also specifically includes geolocation information (which some believe may become a larger privacy issue with the prevalence of mobile computing and smartphones).

How does the Act promote transparency about the commercial use of information?

Section 101 of the Act purports to promote transparency by requiring covered entities to provide certain information about the covered entity’s information practices and the individual’s options with respect to such practices, including:

• the identity of the covered entity

• description of covered/sensitive information collected or stored by covered entity

• the specific purposes for which the covered entity collects and used the covered information, including how the covered entity customizes products/services/prices based on such information

• the specific purposes for which covered/sensitive information may be disclosed to third parties and the categories of third parties who may receive such information the choice and means for limiting the collection, use and disclosure of covered/sensitive information

• a description of the information any individual may request access to and the means for making such a request

• how the covered entity may merge, link or combine covered/sensitive information

• the retention schedule for covered/sensitive information including whether the entity will retain information permanently

• whether the individual can direct the deletion of information collected from or about the individual

• a reasonable means for individuals to contact the covered entities regarding their handing of covered/sensitive information

• the process by which the covered entity notifies individuals of material changes to its practices or policies

• a hyperlink to the FTC Commissioner’s online consumer complaint form or the FTC’s toll-free number for the Commissions Consumer Response Center

• the effective date of the privacy notice.

Observations: While much of the notice requirements of the Act parallel the Fair Information Privacy Principles, one could argue that the Act also includes notice elements that appear to go beyond such principles. These additional elements also appear to address current issues that some believe may pose privacy problems. For example, it is interesting that notice is required concerning where/how information will be merged or combined with other data. The retention schedule requirement is also interesting as it may address concerns that some have about some companies retaining data too long.

How must the notice required under the Act be provided?

Under section 102 of the Act, the notices described in the prior FAQ must be “concise, meaningful, timely, prominent, and easy-to-understand” in accordance with FTC regulations authorized under the Act that will be published later. Notices must be retained for six years from the later of the date the notice was issued or the date it was last in effect.

Is notice required for “in-person transactions”?

Under section 103 of the Act, it appears that the notice and information referenced above is not necessary for “in-person transactions” but only if the covered information is collected for an “operational purpose” (e.g.for the purpose of providing goods or services, managing operations, compliance with legal obligations or protection against risks and threats ) or if the covered entity is only collecting name, address, email or phone/fax and does not share the information or use that information to acquire additional information about the individual from third parties.

Observations:  Notably, the Act does not indicate that covered information needs to be collected solely for operational purposes. Based on the current wording, one could argue that if covered information was covered for both operational purposes and marketing purposes, it could fall under the “operational purposes” exception.

Are covered entities required to get consent from individuals for the collection and use of covered information?

Yes, under section 103 of the Act covered entities must provide “opt-out” consent in order to collect or use covered information (except for the collection or use of covered information for operational purposes). The Act indicates that a covered entity shall be considered to have obtained proper consent if it has provided the notice required under the Act, provides a reasonable means to exercise an opt-out right and decline consent; and the individual either affirmatively grants consent or does not decline consent.

The consent shall be considered permanent unless directed by the individual. However, the covered entity must provide an individual with a reasonable means to decline or revoke previously granted consent at any time.

A covered entity may also provide individuals with the ability to decline consent for specific uses of his or her personal information, but only if the individual has been given an opportunity to broadly opt-out of all collection and use of covered information.

May covered entities collection or use covered information as a condition of an individual’s receipt of a service or other benefit?

Yes, but only if: the covered entity has a direct relationship with the individual; the information is not shared with any third party without the express affirmative consent of the individual; the covered entity provides a clear, prominent and specific statement of the specific purposes for which covered information will be used; the individual provides consent by acknowledging such uses; and the individual is able to later withdraw consent.

Are covered entities required to get consent from individuals for the disclosure of covered information to third parties?

Yes. In general, a covered entity may not disclose information to a third party unless it has received express affirmative consent from the individual prior to disclosure. However, some exceptions apply.  For example, no such consent is necessary for joint marketing activities as long as the covered entity has entered into a contract with the third party that prohibits the disclosure of the information except as necessary to carry out the joint marketing relationship.

Are covered entities required to get consent from individuals for the collection, use or disclosure of sensitive information?

Yes. In general, under section 104 of the Act, a covered entity may not collect, use or disclose sensitive information to a third party unless it has received express affirmative consent from the individual.

Does the Act put any limitations or restrictions on behavioral advertising or tracking an individual’s Internet browsing activities?

Yes. Under section 104 of the Act, covered entities may not use software or hardware to monitor all or substantially all (a.k.a. “comprehensive online data collection”) of an individual’s browsing activity (or other significant Internet or computer activity), and may not collect, use or disclose information concerning that activity unless certain conditions are met.

Covered entities may engage in comprehensive online data collection if: they receive the express written consent of the individual or for the purpose of making such information accessible to the individual for the use by the individual.

Are there any exceptions to the consent requirements of the Act?

Yes, exceptions exist under section 106 of the Act.

Covered entities may disclose information to a service provider as long as it has obtained the initial consent to collect information and contractually prohibits the service provider from disclosing the information other than for purposes of carrying out the purpose for which the information was disclosed. However, the Act indicates that the covered entity remains responsible and liable for the protection of the information transferred to a service provider for processing.

Consent is also not required for collection, use or disclosure necessary for fraud detection, imminent danger or compliance with law.

In addition, consent under the Act is not necessary for the collection, use or disclosure of publicly available information. However, even publicly available information cannot be used by a covered entity for marketing purposes if the individual has opted out of such use.

Do covered entities have any obligation concerning the accuracy of information they collect, assemble or maintain?

Yes, section 201 of the Act requires covered entities to establish reasonable procedures to assure the accuracy of covered information or sensitive information they collect, assemble or maintain. This duty may be further fleshed out as section 201 requires the FTC to promulgate regulations to implement this section. Limited exceptions exist with respect to fraud databases and publicly available information.

Does the Act require the covered entity to provide individuals with access to covered information or sensitive information?

Yes, under section 202, covered entities are required to provide access to such information if such information may be used for purposes that could result in an adverse decision against the individual, including the denial of a right, benefit, or privilege. If the information could not reasonably result in an adverse decision, the covered entity is only required to provide a notice to the individual of the type of information the covered entity typically collects.

In addition, covered entities, upon request, must provide individuals with access to their personal files, but only if the entity stores such file in a manner that makes it accessible in the normal course of business.

However, none of the foregoing obligations apply to information retained for under 30 days.

Is there any time frame by which a covered entity must respond to a permitted access, correction or amendment request?

Yes, in general, under section 202(f), covered entities have thirty days from the receipt of such request to respond.

Does the Act impose any data security requirements with respect to covered information or sensitive information?

Yes, under section 302 of the Act each covered entity and service provider must establish, implement and maintain “reasonable and appropriate” administrative, technical and physical safeguards to:

• ensure the security, integrity, and confidentiality of the covered information or sensitive information it collects, assembles, or maintains

• protect against any anticipated threats, reasonably foreseeable vulnerabilities, or hazards to the security or integrity of such information; and

• protect against unauthorized access to or use of such information and loss, misuse, alteration, or destruction of such information.

The Act requires the FTC to promulgate regulations to implement this section.

Does the Act require covered entities to conduct any risk assessment with respect to its information handling practices?

Yes, under section 302 of the Act covered entities are required to conduct an assessment of the risks to individuals raised by its collection, use and disclosure of covered information or sensitive information prior to engaging in such activities (or if it believes there is a reasonable likelihood that it will engage in such activities), but only if such activities will involve more than 1 million individuals.

Does the Act require any audits or assessments?

Yes, covered entities must conduct periodic assessments to evaluate whether the covered/sensitive information it has collected remains necessary for the purposes described at the time of collection, and whether the covered entities’ ongoing collection practices remain necessary for legitimate business purposes.

Does the Act limit how long a covered entity can retain covered/sensitive information?

Yes, under section 303 of the Act covered entities may retain covered/sensitive information for only as long as necessary to fulfill a legitimate business purpose or comply with a legal requirement.

Coming up next in Part Two:  the “Safe Harbor” outlined in the Act, various exemptions for de-identified information and application and enforcement of the Act.

One consequence of the growing body of laws, regulations, standards, and contractual requirements dealing with protected categories of personally identifiable information (PII) is a heightened awareness of the importance of establishing effective internal governance mechanisms. The organization needs to be clear on who decides, and how, key questions such as these:

• Which kinds of PII should be collected in the first place?
• Which categories of PII require particular safeguards or treatment, either legally or because the information is considered especially sensitive by customers and employees, or by the organization itself?
• How should PII be secured?
• Who should be given access to PII, and for what purposes?
• How are individuals informed of events (such as business changes and security breaches) and options (such as op-in or opt-out choices) that affect their privacy and personal security?
• How should PII be disposed of at the end of its useful life?

In some cases, legislators, regulators, and industry standards bodies provide guidance on PII management and governance, at least by implication. But for the most part, organizations must find their own way to weave privacy compliance and PII risk management into effective internal governance procedures. Adding privacy to the organization’s governance structure, with constant reference to evolving privacy rules and standards, is one way to avoid costly mistakes and arm the organization with legal defenses in the event of a security breach or a serious privacy complaint.

I recently presented a workshop on “information governance” at the Vanguard Security 2010 conference in Las Vegas. Some of the participants, typically managers of enterprise IT security functions, were concerned about whether their employers -- companies, universities, healthcare systems, and government agencies -- were organizationally equipped to make appropriate decisions about collecting, securing, and using PII in a rapidly changing legal and regulatory environment.

It’s a legitimate concern. Organizations in both the private and public sectors are increasingly held accountable for the proper handling of sensitive or potentially dangerous PII such as health records, Social Security Numbers, bank account and payment card details, credit reports, and background checks. An effective system of both privacy and security governance is essential if the organization is to achieve substantial compliance, manage litigation and market risks, and respond adequately to privacy challenges and to security threats and incidents. Relevant laws, standards, and contract requirements sometimes mandate certain aspects of privacy or security management and, less frequently, governance. Otherwise, it is ultimately a matter of finding what best fits your organization’s leadership culture – although it may be helpful to compare models from other organizations with similar needs.
 

What PII Do You Handle?

Don Harris of HR Privacy Solutions often refers to personal data as the latest “controlled substance.” For purposes of this discussion, I use the term “PII” to mean whatever personally identifiable information your organization has an obligation to protect from unauthorized disclosure, use, loss, or alteration. In the US, that varies considerably by sector and jurisdiction. US state laws requiring personal information security measures or notification of security breaches (in all but four states) typically apply only to limited categories of PII that raise the greatest risk of identity theft, such as the SSN, driver’s license number, and bank account or payment card number (combined with a PIN or other access code). The US federal HIPAA and HITECH acts and a number of state laws more broadly regulate health records, while the federal Gramm-Leach-Bliley Act (GLBA) and financial supervisory authorities focus on the confidentiality of financial records. The Fair Credit Reporting Act is concerned with consumer reports. Equal Employment Opportunity laws often address the proper collection and use of information about race, ethnicity, religion, age, gender, disability, family status, or sexual life. Other laws protect information about students and their parents, licensed drivers, telephone and cable subscribers, persons renting DVDs and videotapes, library patrons, clients of mental health and substance abuse programs, people who seek refuge in battered women’s shelters, genetic data, and an array of other categories of PII deemed potentially risky to individuals. Meanwhile, an organization may be required contractually to handle certain kinds of data in a prescribed manner, such as the PCI-DSS standards that apply to the processing of credit and debit card payments.

By contrast, PII can be almost any information relating to an identifiable individual under the more comprehensive privacy and data protection laws in Canada, the European Union, Australia, Japan, and several other jurisdictions. Even in those jurisdictions, however, there is often an enhanced obligation to protect especially sensitive categories of PII such as those relating to race or ethnicity, health and sex life, religion, political opinion, trade union involvement, criminal records, consumer profiles, bankruptcy, personal financial records, genetic data, geolocation data (such as tracking a person’s physical location through his mobile phone or RFID security badge), and official identifiers such as passports and national ID numbers that could be used in fraud and identity theft.

Who Is Responsible?

Within the organization, who accepts responsibility for ensuring that all relevant categories of PII are handled appropriately? In some organizations, the Chief Legal Officer, Chief Information Officer, or Chief Technology Officer is considered primarily responsible for PII policy decisions. In others, the decisions may be made by senior executives responsible for human relations (employee data) or customer relations (consumer data). Obviously, policy decisions should be made in consultation with the legal or compliance functions in the organization. IT security managers will provide some of the tools and techniques – once they know what the requirements are and how to classify the data. HR management should be on top of employee privacy issues in all the jurisdictions in which the organization has employees (and their dependents) or independent contractors and temporary workers. The customer relations and marketing managers should understand the restrictions under which they operate and the disclosures and choices they must provide. Records management should implement appropriate storage and disposal policies. And many organizations now have a “privacy officer” (under any of a variety of titles) who is charged with offering guidance and making recommendations relating to PII.

Business managers also typically make recommendations, but their primary job is to see that the organization’s policies are implemented – that is the management function. Security and privacy governance refers to the process by which those policies are adopted in the first place and then monitored and adjusted. Ultimately, policy decisions should be made by senior or C-level executives or (for the most fundamental policies) by the board of directors or agency chief. Ideally, the CEO and directors are at least broadly aware of privacy and security issues affecting the organization’s handling of PII -- well before the first embarrassing privacy complaint or security breach hits the news.

Governance Requirements and Tools

Most PII laws and regulations are not terribly detailed in referring to information governance issues. It is simply the organization’s obligation to find the best ways to achieve compliance.

Corporate governance, particularly in publicly traded companies, offers some familiar and relevant models for information governance. In the US (especially under the Sarbanes-Oxley Act or “SOX”), Canada, Europe, and Japan, financial reporting laws or stock exchange rules require management controls in all areas material to the accurate reporting of financial results to investors and regulators. Under those laws, a CFO, CEO, or Audit Committee of the board must certify the effectiveness of the company’s control procedures. In most modern companies, IT is used for data collection and reporting and, indeed, is critical to the success of the organization. Thus, internal and external auditors refer to IT management “control objectives,” often with reference to the COBIT Framework published by ISACA.

IT control objectives may include items such as access controls, encryption, and data retention policies as required to comply with PII rules or to manage PII risks. In some companies, there is such a dependence on protected PII that management reporting expressly refers to relevant PII compliance requirements such as those imposed by HIPAA, GLBA, FRCA, PCI-DSS, PIPEDA, or national laws based on the EU Data Protection Directive. In those cases, PII compliance requirements are documented in specific control objectives with associated policies and procedures, assigned to responsible functions, and periodically audited and certified.

Apart from public company governance requirements, some laws and regulations specifically require that there is a designated person or department accountable for the security of covered PII, with an obligation to report to senior management. This is true of US federal health and financial privacy regulation, as it is of Canadian legislation incorporating the CSA’s Model Code for the Protection of Personal Information. In several EU countries and Switzerland, the organization may or must designate an internal data protection officer who reviews and maintains a “registry” of PII processing in the organization, renders a written opinion on proposals for handling sensitive categories of data, and reports directly to the highest level of management.

Increasingly, laws and regulations governing PII mandate a risk-based, written security policy. In the US, the HIPAA and GLBA privacy and security rules require written policies, as do the “Red Flag Rules” adopted by the Federal Trade Commission and the federal financial regulatory bodies to combat identity theft. The Massachusetts Personal Information Security Regulation requires a written information security policy (commonly called a “WISP”) covering the categories of data for which security breach notices are required. The Canadian CSA standard and several European countries similarly require or recommend written security policies, documented procedures, and approvals by the governing body of a company or agency.

E-government laws and executive policies in the US and Canada require agencies to designate a privacy officer, reporting to a senior agency executive, with oversight by an auditor or inspector general from outside the agency (or by the federal or provincial privacy commissioner, in Canada). US and Canadian federal agencies are also now generally required to prepare a privacy impact assessment (PIA), identifying PII needs and measures to mitigate privacy risks, before implementing a new or substantially modified information system that includes PII.

Some companies and nonprofits in North America and Europe follow a similar approach of requiring the responsible manager to prepare a PIA for review by a privacy officer and, if there are serious objections, by executive management. Some also undertake a baseline privacy audit to determine where the organization is already handling PII and where it might be at risk. Periodic security audits are common in many organizations, but the scope often needs to be adjusted to include protected categories of PII.

A variety of vendors offer “GRC” (governance, risk, and compliance) software tools and databases to help automate the task of identifying PII in the organization’s information systems and checklisting PII compliance requirements and actions. These can be helpful, although there is inevitably a need for knowledgable individuals to review the scope, methodology, and results.

As much PII processing is ultimately outsourced, and PII is often exchanged with business partners, a key aspect of compliance is contract management. HIPAA and GLBA, the Canadian CSA standards incorporated in PIPEDA and provincial laws, and the EU Data Protection Directive all require a measure of due diligence in contracting with vendors to handle PII. Contracts that refer to the confidentiality of proprietary information should also address the confidentiality and security of PII. The procurement function in the organization needs to be made aware of PII risks and requirements, and procurement and legal personnel should ensure that there are appropriate confidentiality and indemnification clauses, security schedules, and any required provisions to meet sectoral requirements or legal conditions for cross-border transfers of PII (e.g., from the EU to the US or India). In some cases, it is practical and appropriate to make contractual reference to established information security management and control standards such as ISO 27001 / 27002, PCI-DSS, or NIST 800 series guidelines. An aspect of information governance is setting policies for such contract requirements and monitoring procurement practices that involve PII, since accountability itself can rarely be outsourced.

Trends and Keys

The privacy and data protection laws and PII security and breach notification legislation have motivated organizations to better understand changing legal requirements, to inventory their collection, use, and sharing of PII, and to minimize the use or retention of sensitive PII throughout the organization. In some companies that means, for example, reducing the instances where SSNs and other official identifiers are recorded or communicated, encrypting PII, outsourcing payment card verification, and imposing stricter data destruction schedules on customer and employee records.

Organizations have also been driven to establish or update written policies and procedures for handling PII, and then include these in training and internal audits, as well as in contracts with third parties.

Another trend has been to raise information governance to a more centralized and higher level of management and reporting, with privacy officers and IT security managers reporting to senior executives rather than to middle managers. This is an understandable result of high-profile privacy and security lapses affecting the organization or its peers, as well as of SOX, security breach notice laws, FTC and state investigations, and pressure from privacy commissioners and sectoral regulators.

From our observation, and from reports by professional associations and conference participants, it appears that two elements are key to the success of organizations that have established effective information governance relating to PII: a high-level champion that the CEO, board, and business managers will listen to, and a liaison team to review PII issues and make recommendations to management. Depending on the structure and mission of the organization, the privacy liaison team might include representatives of several functions that deal with PII: IT, security, HR, customer relations, marketing, government relations, labor relations, legal, compliance, audit, procurement or contract management, product development, international subsidiaries (subject to different PII rules). It is not hard to imagine who should have a seat at the table (or more likely on the email list and occasional conference call), but it may be a challenge to identify who will convene and lead the team, unless the organization has already designated a chief privacy officer or equivalent position.

In the end, good information governance depends not only on procedures and tools but on the quality, drive, and authority of those who lead the effort.
 

Both the Leahy and Rush bills also impose increased obligations on "information brokers," defined as follows in the Rush bill:

(6) INFORMATION BROKER- The term `information broker'--

(A) means a commercial entity whose business is to collect, assemble, or maintain personal information concerning individuals who are not current or former customers of such entity in order to sell such information or provide access to such information to any nonaffiliated third party in exchange for consideration, whether such collection, assembly, or maintenance of personal information is performed by the information broker directly, or by contract or subcontract with any other entity; and

(B) does not include a commercial entity to the extent that such entity processes information collected by and received from a nonaffiliated third party concerning individuals who are current or former customers or employees of such third party to enable such third party to (1) provide benefits for its employees or (2) directly transact business with its customers.

(the Leahy bill uses the term "data broker", but has a similar definition).  Information brokers would be required to submit their security policies to the FTC in the event their breach notice obligations where triggered.  Moreover, the DATA imposes obligations on information brokers concerning data accuracy, data access and disputed data.  Information brokers would also be required to maintain audit logs or similar measures "which facilitate the auditing or retracing of any internal or external access to, or transmissions of, any data containing personal information collected, assembled, or maintained by such information broker."

While sometimes touted as a "national" data security law, the DATA appears to apply only to those entities regulated by the FTC:

The requirements of sections 2 and 3 shall only apply to those persons, partnerships, or corporations over which the Commission has authority pursuant to section 5(a)(2) of the Federal Trade Commission Act.

As such, it would not appear to apply to financial institutions, insurance companies, governmental bodies or common carriers (e.g. telecommunications companies or transportation companies).

Please note, while passage of DATA by the House is a major milestone, there may still be a long way before DATA becomes law.  The Senate will have to pass their version of the bill and then it would have to go through reconciliation.  Stay tuned.

Tanya Forsheit.  Litigation is my first professional love, and privacy and data security are a close second. Prior to founding the InformationLawGroup, I was the Co-Chair of Proskauer Rose LLP’s Privacy and Data Security practice group, where I launched the firm’s Privacy Law Blog in 2007. I work with clients to address legal requirements and best practices for protecting customer and employee information. I also have extensive experience handling complex commercial and appellate litigation for corporate and individual clients before federal and state courts. In 2009, I was honored to be named one of the Daily Journal’s Top 100 women litigators in California. I am First Vice President of the Women Lawyers Association of Los Angeles, I sit on the Executive Committee of the Los Angeles County Bar Association Entertainment and Intellectual Property Section, and I am co-chair of the American Bar Association’s Information Security Committee Cloud Computing Law Working Group.

David Navetta.  Dave has over 12 years of legal experience, including in the areas of information security and privacy contract and policy drafting, breach notice legal services, risk management consulting and regulatory compliance. Prior to starting his own firm, InfoSecCompliance LLC in 2005, he worked as an assistant general counsel for a major insurer’s eBusiness risk group, where he analyzed and forecasted information security, privacy and technology risks and drafted policies to cover such risks. He was a litigator at the Chicago office of an international law firm prior to going in-house. He currently serves as a Co-Chair of the ABA’s Information Security Committee, and is also Co-Chair of the PCI Legal Risk and Liability Working Group. Dave is now working on a book concerning PCI contracting.

Scott Blackmer.  Scott has practiced information technology law since 1982. He has been listed in several peer-reviewed directories of prominent IT lawyers, including the Legal Media Group’s Guide to the World’s Leading Technology, Media & Telecommunications Lawyers. Formerly a partner in the Washington, D.C., and Brussels offices of WilmerHale, Scott serves on the executive management team of the First Law International legal network in Brussels. He also consults on privacy, data protection and security issues in association with HR Privacy Solutions in New York and Jeitosa Group International in San Francisco. He also serves as general counsel to the Trusted Computing Group, XDI.org, and OpenID Foundation, and he counsels other industry associations, corporations and entrepreneurs. He has advised federal and state agencies as well as the European Commission on privacy and security issues, and he currently serves as a privacy advisor to the U.S. Social Security Administration. Scott also arbitrates Internet domain name disputes brought before the World Intellectual Property Organization (WIPO) in Geneva. Over his long career, he has worked on transactions and licensing, compliance issues, litigation, and arbitration matters in over 100 countries.

All three of us frequently speak and write on privacy and data security issues. Dave and I are both Certified Information Privacy Professionals through the International Association of Privacy Professionals.

We have successfully served a diverse range of clients: from large Fortune 500 multinationals and name-brand traditional brick-and-mortar companies, to small start-ups and technology service providers.  Our law practice uses an integrated approach combining technology and administrative controls, legal compliance, contractual vendor management and risk.

We look forward to meeting you soon!