Internet Speech Immunity

Internet speech immunity exceptions are sought frequently by individuals and businesses who are affected by someone else’s comments about them via an online site.  Online sites are today’s marketplace of ideas to enhance the “competition of the market.”[1]  And so, the claim usually asserted is a defamation claim directed to the website from where the content of the comment is displayed.  The assertion is underscored by a belief that the website is responsible for the publication of the statement either slander as it is conveyed verbally in a video or libel in written form displayed on a website.  The issue presented by the amount of social interaction freely exchanging views which may be directed at a particular entity or person is to determine the balance between freedoms of speech, i.e., protected speech and unprotected speech.  The element of having a harmful effect may or may not be pertinent in light of the level of publicity of the plaintiff, the truthfulness of the libel or slander, the public import of the statement, and the political value of the statement rendered to the discourse.

Amid the plethora of defenses that include truth, privilege, lack of malice, illegality, there is the social import or political value defense known as Anti-SLAPP.  The classical meaning of the acronym is to address the events that lead to a strategic lawsuit against public participation (SLAPP).  Anti-SLAPP was garnered by states to address the need to foster free speech and discourse, either in petition form or just free speech rights. The belief is that in the marketplace of ideas, with ideas being exchanged, an element of truth arises.  The expectation is that the process of openness of exchanges will bring to light incorrect conceptions.  The opposition to any light arising is based on this fear that their views may be rendered weak or incorrect in society; hence,  they seek to silence discourse and potential dissident views.

The merit behind the Anti-SLAPP promulgation was to essentially reduce the number of frivolous lawsuits.  Such suits would be driven to prevent or censor the speech or the activity of public display.  The concern among judges and lawyers is that a SLAPP action is always the case responding and opposing an exercise of free speech.  The SLAPP vehicle may be instrumental to challenge a lawsuit that seeks to silence free speech, especially if the targeted speech is one of public import or political value, even from the media.  But, when the targeted speech attempts to convey falsehoods to the public about a private person, the speech loses its protection.

However, the other concern is when the site is used as a platform to organize activity aimed at harming other people, equivalent to using the postal service.  Groups seeking to commit crimes against others, as in the facts described in Fields v. Twitter, use online platforms to carry out their plans.  The idea is that if the platform prohibited such communications, that act, and its involved communicated organization would have been prevented.  That expectation of monitoring conduct touches upon “policing” issues and “privacy” issues that are beyond the scope of this post.

This previous concern leads into the consideration of when a site is used to voice negative comments about someone or a business and it is claimed to be the cause of  harming someone’s social and business reputation.  The argument asserted is that the site could have prevented the comments from posting trying to apply Section 230 under the Communications Decency Act (CDA).  The claim then seeks to establish that the online site is none other than a publisher and should be held responsible, especially when the comments could be fabrications used by the online site.  This was the tone of the claims and discussion in Kimzey v. Yelp.

What stands out in Kimzey is the angle that transcends from allowing a statement or comment to be displayed towards seeking to establish that the comment was a fabrication and that it was instrumentally contrived by the online site itself.  The argument goes that the online site authored the review and used it as a marketing means.  The court stressed that arguing the potential falsity of a comment or review does not lend itself to disallow the online site’s immunity.  Furthermore, any assessment drawn by the online site to evaluate the comment by users is based on user comments providing the information or data that essentially provides the online site to evaluate the comment and establish a measuring or rating of the comments.  While there is a measure of discretion in setting the measuring, it is the users that provide the information that aids the Internet site’s grading of the comment pertaining to the subject who is claiming defamation.

The world of the web is here to stay and will be a part of our lives forever, especially as Internet law evolves.  As we continue to interconnect via mobile apps and the Internet our voices carry with a broader effect.  The uses of Anti-SLAPP to address silencing speech efforts or defamatory claims or the need to resort to Section 230 to immunize an online site from a defamatory claim for comments displayed on its platform are all instrumental in enhancing communication exchange in society.  As Oliver Wendell Homes, Jr. coined in his dissent in Abrams v. the United States, “The ultimate good desired is better reached by free trade in ideas — that the best test of truth is the power of the thought to get itself accepted in the competition of the market.”

[1] Quoted phrase of Justice Oliver Wendell Homes 1919.

Lorenzo Law Firm is “Working to Protect your Business, Ideas, and Property on the Web." Copyright 2016, all rights reserved Lorenzo Law Firm, P.A.

Data Security Practices

Data security practices are increasingly becoming a theme among management and employees in the administration of business and their daily work process.  The common element in data breaches is the element of human negligence, training or the underestimation of needed attention.   The extent that incidents are occurring, information technology personnel and operations personnel are finding themselves needing to collaborate more frequently than ever.  This change in organizational administration is occurring at levels of state and federal government and in the private sector involving banking, legal, accounting, and insurance industries.  The effort, one may say, is to enhance the quality or rigor of data security employed by the particular entity.  Data breaches are not all the same but they do have one commonality in that the goal of the subject is always confidential data (CD), personal health information (PHI), electronic personal health information (ePHI), or personal identifiable information (PII).  Regardless of the nomenclature used to define what is at the stake, the rigor or quality of the efforts is beginning to be questioned by entities originally deemed to not have authority to engage in this type of scrutiny.  We have blogged on the needed care entities should take to ensure that their representation about their data security practices is not exact.  When an entity claims a certain level of data security method, the Federal Trade Commission (FTC) could very well deem it a deceptive business practice.

The care that should be employed to attend to data handling and transfers is not to be overstated to avoid a finding similar to Dwolla, Inc.’s experience regarding the representations.  One matter that comes to mind in this post is the case involving LabMD, Inc.  LabMD is a company that administered a medical laboratory which among its services also provided cancer screening detection services for physicians. The FTC had filed in 2013 a complaint against LabMD.  In its complaint, it alleged that LabMD is  subject to Section 5 of the FTC Act because it misrepresented its actual data security efforts.  LabMD’s practice was questioned.  The FTC argued that LabMD did not exert reasonable efforts to secure data of personal information and that its networks were not attended to as they should. The FTC commenced its investigation as a result of data security incidents at LabMD.   There was a tossing and turning exchange in this matter between the three, i.e., the FTC, the 11^th Circuit, and LabMD.

From the initial complaint that commenced in Georgia District Court, it was noted that LabMD patient information available on the Internet.  The data or electronic personal health information (ePHI) was actually searchable in a peer-to-peer network.   LabMD was facing claims that it failed to prevent unauthorized disclosure  of ePHI.  Its motion to dismiss was unsuccessful, despite its strong argument.  LabMD argued that the FTC did not authority.   The FTC had filed an administrative case in District Court in Georgia.  The District Court had to determine if indeed the FTC had a say over the handling of ePHI.

The toss thereafter was when the district court denied LabMD’s motion to dismiss and LabMD proceeded to appeal to the Eleventh Circuit Court of Appeals.  The turn was not only that the Eleventh Circuit ruled against LabMD’s appeal.  The turn was that it was hoped that the Court would opine on the FTC’s enforcement authority.  What we learned is that the Circuit Court determined that there was an administrative remedy step that was required.  The Court ruled that LabMD had remedies to exhaust[1] before it was able to engage on the issues presented.  The resulting turn at that stage was an administrative law lesson.

What proceeded thereafter was as expected.  An administrative proceeding ensued where an ALJ determined that harm was not demonstrated.   The ALJ reasoned that short of finding harm, the Commission did not meet what FTC Act Sec. 5 required.  The FTC subsequently reversed the ALJ’s determination.  In its ruling, the FTC stated that LabMD did not exert the best efforts to secure the data.  It found that it did not monitor how the files were handled and it did not employ a system to detect if there was an intrusion.  These steps were deemed to be basic means of protecting confidential data. The FTC concluded that LabMD’s conduct posed an ‘unfair act’ for the public to trust and it was inconsistent with FTC Act Sec. 5.  What is noteworthy, is that nowhere in Section 5 of the FTC Act does it provide the FTC authority to address the need to protect medical records or maintain their privacy.

Nevertheless, the FTC proceeded to conclude that the disclosure was tantamount to harm because of the neglect that LabMD did by not training employees adequately on handling medical records, and not monitoring its firewall.  LabMD’s conduct resulting in disclosure of medical personal information is a substantial injury under Sec. 5 of the FTC Act.  The FTC did not look into whether the information was used in the open market.  The FTC just looked at the fact that there was an unauthorized disclosure of PHI.  LabMD is now obliged to implement a “CISP” (comprehensive information security program) and become proactive to inform individuals and conduct frequent audits.  The key point to note about this matter that resulted with the FTC suing LabMD is that harm may just be more about the unauthorized disclosure due to neglect than the harm actually experienced by the individuals and that the FTC is exerting a greater authority than originally conceived it had regarding data security.

[1] Administrative Procedure Act - 5 U.S. Code § 704 - Actions reviewable

Lorenzo Law Firm is “Working to Protect your Business, Ideas, and Property on the Web." Copyright 2016, all rights reserved Lorenzo Law Firm, P.A.

Website Crawling and Data Scraping Thoughts

Website crawling and data scraping have burdened the growth of e-commerce as website owners are witnessing their data scraped.  The legal questions have lingered.  Many questions stand out.  The prevalence of crawling and scraping has become too of the norm for those using web content for business, research, or marketing purposes. The common theme is that website scraping is used by those who are seeking a short cut in order to catch up to their competition, seeking to emulate their competition, or are seeking to extract information that would otherwise involve too much time.  The crawling can be useful for enhancing search relevance, indexing, and accuracy.  The software used is not unique.  It could be automated just to extract information similar to what search engines do plus do an additional feat by converting the data useful within a database.  The data being sought can be extracted from many types of sources.  As it could be used by potential newbie business desiring to start at some equal footing, they could seek to get their data from booking websites, yelp, eBay, or even a directory.  The potential scrapers can seek to go after a business they desire to emulate.  The purposes for which website scraping is pursued gives “big data” gathering a new image with unsavory impressions.

The reality is that the Internet is not without the existence of web crawlers and scrapers which are instrumental to the analysis of website performance in sync with search words and traffic volume measuring.  Yet, the method of using web crawlers to either aggregate news content or enhance the relevancy of search result has drawn attention to the legal consequences and the legal issues they cause.  To the scrapped website business, the potential arguments could very well be from the spectrum of a violation of the website’s terms of use to the occurrence of computer abuse.  Between them is a list of legal considerations which include trespass to chattel, copyright infringement, trademark infringement, and unauthorized access to computer information all in the name of online data collection for better or for worse.  The for worse consideration embraces conceptions of a software application tasked to collect online data through scripts, also known as “bot”, and the depicted analysis of the data. These bots give the impression of human actual online interaction.  Nevertheless, the legal questions and impact of a bot’s online website data scraping work are diverse.

Among the legal issues is the issue raised regarding the violation of the terms of use that are stated on websites that prohibit the scraping and crawling essentially copying of the respective websites content and data.  The argument can embrace the notion of contract by which if one uses or visits the website there is the understanding that visitors are bound by the terms of use (ToS) of the website.  Doing such an act that violates the ToS of a website, construes a breach of contract argument, without going into the details – in this short note – addressing the aspects of “clickwrap” and “browsewrap agreements.  Both hinge on informed consent and the means of expressing a user’s consent and the user’s clear ‘constructive knowledge’ vis-à-vis the prominence of the ToS on a website.  The glaring prominence of the ToS and conditions for a website user to be aware are pivotal to establish a breach of terms of use.  The actual event of reading the terms is immaterial.  However, the same cannot be said when the crawling or scraping is done by a bot that is not scripted to read and consent to a website’s ToS.  The means by which this is technically done skirts the legal elements of ‘consent’, ‘constructive knowledge’, and ‘prominent and clear notice’ that are required to establish a form of breach.  The arguments hovering on prohibiting uses of a website have reached the point of discussing commercial and personal uses, with the former being the one restricted and prohibited by the ToS.

In addition to the ToS concern, there is the copyright infringement issue with website scraping data and content.  The ultimate question is to determine which aspects provides the best argument.  The Copyright Act seeks to protect the expressions whether they be in a visibly readable form or in a digital form on a server.  The Copyright Act may not be effective in addressing or preempting the use sought to be addressed by the website owner.  For instance, if the crawling and scraping are not done for commercial purposes, the Copyright Act may not yield the leverage necessary.  Yet, Facebook’s case against Power.com which was underscored by the Copyright Act was effective in that the defendant was aggregating Facebook’s data unto another site and that was in violation of Facebook’s terms.  The Northern District Court of California denied defendant’s motion to dismiss determining that scraping involves the copying that Facebook explicitly restricts in its ToS.

Aside from the copyright infringement issues, there are considerations that scraping a website or crawling a website against the owner’s ToS is tantamount to unauthorized access or exceeding the permitted use of a website and its content.  Such a view resorts to the Computer Fraud and Abuse Act (CFAA) that points to the unauthorized access of a computer system and also points to exceeding the scope of use that is permitted.  The use of a website must have exceeded what was authorized coupled with an express and clear statement on the website of what was a prohibited use or activity on the website regarding its content and data. Conjoined with this consideration is the often articulated defensive crutch of ‘fair-use’.   Yet, scraping website content does not inherently engender to be the beneficiary of the ‘fair-use’ argument.

Furthermore, web crawling and scraping bring as well the concerns for determining the existence of damages if website content and website data is considered as ‘chattel’.  As argued by eBay against Bidder’s Edge, the website platform content and data was argued to be chattel to which Bidder’s Edge trespassed.  eBay also argued that the defendant’s act interrupted eBay’s operation.  However, the effectiveness of the argument must rely on the existence of damages.   Without damages, the argument withers and courts do not see trespass to chattels as a workable argument against website scraping and crawling.  A frequently used argument against web crawling and scraping is the Digital Millennium Copyright Act (“DMCA”) which resorts to restricting fair-use of content. What is interesting is the actual bypassing that takes place to circumvent a website’s measures to restrict web crawling and scraping. The DMCA provides an enforcement means for copyright rights of a websites digital content.

The complexity created by the use of bots is elusive and evident.  Also evident is that the fair use defense along with the absence of damages and the potential absence of the element of consent and constructive knowledge will continue as points of contention, as website owners oppose web scrapers.  The legal issues thus far have crossed from intellectual property and contract concerns to unauthorized access to a network or computer system, raising the specter for continued legal disputes over website scraping.
Lorenzo Law Firm is “Working to Protect your Business, Ideas, and Property on the Web." Copyright 2016, all rights reserved Lorenzo Law Firm, P.A.

Data Breach Notification and the Ransomware HIPAA Question

Notification of a data breach is a worrisome step of any governmental entity, association, medical office, law office, data management entity, and even of a school or university. The provisions that attempt to address this progressing act of cyber attempts to acquire data, of any sort, are evolving.   An initial reaction to an incident is how to inform the relevant entities that something has happened while overwhelmingly concerned with trying to prevent a spread or reoccurrence, let alone minimizing the potential harm.  Certain states require immediate notification to individuals whose personal health information (PHI) or their electronic health information (ePHI) been compromised.  By compromised, it is meant that the PHI has been obtained by someone or entity without authorization.  There are responsibilities that covered entities under the Health Insurance Portability and Accountability Act (HIPAA) are expected to follow and meet.  The key point to note is the element of electronic transmittal, storage, and administration of health records. Another key point is the stress on protecting PHI and ePHI.  Along with these points is the ever so important consideration of the shared responsibilities of the ‘business associates’ who are so integral daily in the operations of handling ePHI and PHI records, though not a healthcare provider, a health plan, or a health care clearinghouse. These business associates serve as third-party responsible entities in handling PHI and are affected by ransomware cyber incidents.

The rate in which cyber events are occurring is so alarming that there is a growing chronicle of cyber incidents in varied sectors of the economy.  The value of personal information and personal health information is at an all-time high which is significantly driving increasing attacks.  The United States Department of Health and Human Services (HHS) pursuant to HIPAA, has provided guidelines  for business associates and covered entities to implement as they operationally address the data breaches and ‘ransomware’ incidents, beyond the inherent notification requirements that may apply contingent on state notification laws.  On this point regarding the state notification laws impinging on covered entities and business associates, note should be taken that over 40 states have implemented some form of data breach incident notification regime.  Among them, they have their differences in addressing how to react to the incidents.  Aspects of a definition of what is ‘personal’ are imperative to triggering a required notification by a business associate and or a covered entity and those aspects differ among states.  Another difference is the required content in the notices as well as the requirement to inform governmental agencies of the incident.

As common steps are prescribed to address a data breach it is important to be aware of how they take place.  The intelligent variety of ways data breaches is emerging catch many information technology specialists by surprise.  Intrusions, which can occur with email attachments, phishing messages, hard intrusions breaching networks, and even websites, can achieve the goals of ransomware.  The ransomware characteristics are varied.  One aspect seeks to deny the covered entity’s or business associates’ record files.  This may be done by an expedient encryption process.  The covered entity or business associate is not informed by the hacker of the encryption key.  Once paid, it is hoped that the hacker releases the information or provided a key to decrypt the record files, but that is not always the case.  There have been incidences that captured data is forcefully transferred to another data storage location where in effect the data no longer resides in the covered entities or business associates network.  This latter scenario is a nightmare.

Nevertheless, the importance of learning what to do now before it happens is critical to the integrity of a covered entity or business associate.  The HHS points are some of the similarly required steps that the Federal Trade Commission is seeking to impose on entities it has cited leaning with great emphasis on prevention which is after all the name of the game.  For instance, the imperative of conducting ‘scheduled’ and frequent backups has not only the benefit of retaining the data that could minimize the damage that could be done if the data is ultimately destroyed or transferred to a remote server, but it allows for operational recovery.  The guidelines also stress the need for testing the restorative process. The examination should highlight how the entity can recover and if its efficiencies and protections are implemented on a restorative posture.  The restorative testing should as well assess its process when using remote storage retrieval rather than just an online connected network.  The concern is that if the backup is online and synced with the online network, the malware can infiltrate that system and compromise any measures taken to address how to recover from ransomware attack.

Entities overwhelmingly are expected to undertake not only plan to train personnel in handling data, personal health information, and electronic files, but as well anticipate how to respond to a cyber incident.  Appropriately training personnel on the noticeable signs of cyber attempts; though, that is only as precise and effective as yesterday’s cyber incident.  But what is expected is that staff should be made aware of their responsibility to not visit questionable sites nor open unknown emails.  An entity’s effort in conducting risk assessments before they occur and after is expected.  The entity’s plan reacting to an incident should be anticipated and rehearsed to ensure that services are not compromised. The assessment of risk will tell if there is a notification requirement.  That risk assessment will screen for how the encryption was effective and how much of the data was encrypted.

The notification requirement issue is the ultimate concern that trips certain entities.  Counsel can be instructive not only in communications with the insurer that covers the cyber incidents within the entity’s General Commercial Liability Insurance (GCLI) but in communicating with law enforcement and in crafting the notice that is sent to effect individuals whose records were compromised.  Depending on the state, determines the notice and its contents.  Depending on the nature of how the data of PHI and ePHI was administered by the covered entity and the business associate, as well determines if there is a noticeable incident under HIPAA. Here the question hinges on the implementation of encryption as a protective tool by the entity.  The privacy requirement stated under HIPAA says ‘acquisition, use or disclosure of personal health information …compromises the privacy of the personal health information.”  From this vantage point, the risk assessment will be telling of what can be done to remedy the incident.  If the cyber incident acquiring encrypted data then there has not occurred a noticeable cyber incident under HIPAA, however, state laws may require notification.  Risk assessment is needed that accounts for the scope of the risk, the effectiveness of the encryption, the assessment of what data was actually compromised, and to what extent the data was compromised.  Each incident will require a case-by-case assessment in order to determine compliance as well as vulnerabilities, including the notification requirements that will be triggered by the nature and extent of the ePHI and PHI compromise in unauthorized hands.
Lorenzo Law Firm is “Working to Protect your Business, Ideas, and Property on the Web." Copyright 2016, all rights reserved Lorenzo Law Firm, P.A.

Data Breach Notification and the Ransomware HIPAA Question

Notification of a data breach is a worrisome step of any governmental entity, association, medical office, law office, data management entity, and even of a school or university. The provisions that attempt to address this progressing act of cyber attempts to acquire data, of any sort, are evolving.   An initial reaction to an incident is how to inform the relevant entities that something has happened while overwhelmingly concerned with trying to prevent a spread or reoccurrence, let alone minimizing the potential harm.  Certain states require immediate notification to individuals whose personal health information (PHI) or their electronic health information (ePHI) been compromised.  By compromised, it is meant that the PHI has been obtained by someone or entity without authorization.  There are responsibilities that covered entities under the Health Insurance Portability and Accountability Act (HIPAA) are expected to follow and meet.  The key point to note is the element of electronic transmittal, storage, and administration of health records. Another key point is the stress on protecting PHI and ePHI.  Along with these points is the ever so important consideration of the shared responsibilities of the ‘business associates’ who are so integral daily in the operations of handling ePHI and PHI records, though not a healthcare provider, a health plan, or a health care clearinghouse. These business associates serve as third-party responsible entities in handling PHI and are affected by ransomware cyber incidents.

The rate in which cyber events are occurring is so alarming that there is a growing chronicle of cyber incidents in varied sectors of the economy.  The value of personal information and personal health information is at an all-time high which is significantly driving increasing attacks.  The United States Department of Health and Human Services (HHS) pursuant to HIPAA, has provided guidelines  for business associates and covered entities to implement as they operationally address the data breaches and ‘ransomware’ incidents, beyond the inherent notification requirements that may apply contingent on state notification laws.  On this point regarding the state notification laws impinging on covered entities and business associates, note should be taken that over 40 states have implemented some form of data breach incident notification regime.  Among them, they have their differences in addressing how to react to the incidents.  Aspects of a definition of what is ‘personal’ are imperative to triggering a required notification by a business associate and or a covered entity and those aspects differ among states.  Another difference is the required content in the notices as well as the requirement to inform governmental agencies of the incident.

As common steps are prescribed to address a data breach it is important to be aware of how they take place.  The intelligent variety of ways data breaches is emerging catch many information technology specialists by surprise.  Intrusions, which can occur with email attachments, phishing messages, hard intrusions breaching networks, and even websites, can achieve the goals of ransomware.  The ransomware characteristics are varied.  One aspect seeks to deny the covered entity’s or business associates’ record files.  This may be done by an expedient encryption process.  The covered entity or business associate is not informed by the hacker of the encryption key.  Once paid, it is hoped that the hacker releases the information or provided a key to decrypt the record files, but that is not always the case.  There have been incidences that captured data is forcefully transferred to another data storage location where in effect the data no longer resides in the covered entities or business associates network.  This latter scenario is a nightmare.

Nevertheless, the importance of learning what to do now before it happens is critical to the integrity of a covered entity or business associate.  The HHS points are some of the similarly required steps that the Federal Trade Commission is seeking to impose on entities it has cited leaning with great emphasis on prevention which is after all the name of the game.  For instance, the imperative of conducting ‘scheduled’ and frequent backups has not only the benefit of retaining the data that could minimize the damage that could be done if the data is ultimately destroyed or transferred to a remote server, but it allows for operational recovery.  The guidelines also stress the need for testing the restorative process. The examination should highlight how the entity can recover and if its efficiencies and protections are implemented on a restorative posture.  The restorative testing should as well assess its process when using remote storage retrieval rather than just an online connected network.  The concern is that if the backup is online and synced with the online network, the malware can infiltrate that system and compromise any measures taken to address how to recover from ransomware attack.

Entities overwhelmingly are expected to undertake not only plan to train personnel in handling data, personal health information, and electronic files, but as well anticipate how to respond to a cyber incident.  Appropriately training personnel on the noticeable signs of cyber attempts; though, that is only as precise and effective as yesterday’s cyber incident.  But what is expected is that staff should be made aware of their responsibility to not visit questionable sites nor open unknown emails.  An entity’s effort in conducting risk assessments before they occur and after is expected.  The entity’s plan reacting to an incident should be anticipated and rehearsed to ensure that services are not compromised. The assessment of risk will tell if there is a notification requirement.  That risk assessment will screen for how the encryption was effective and how much of the data was encrypted.

The notification requirement issue is the ultimate concern that trips certain entities.  Counsel can be instructive not only in communications with the insurer that covers the cyber incidents within the entity’s General Commercial Liability Insurance (GCLI) but in communicating with law enforcement and in crafting the notice that is sent to effect individuals whose records were compromised.  Depending on the state, determines the notice and its contents.  Depending on the nature of how the data of PHI and ePHI was administered by the covered entity and the business associate, as well determines if there is a noticeable incident under HIPAA. Here the question hinges on the implementation of encryption as a protective tool by the entity.  The privacy requirement stated under HIPAA says ‘acquisition, use or disclosure of personal health information …compromises the privacy of the personal health information.”  From this vantage point, the risk assessment will be telling of what can be done to remedy the incident.  If the cyber incident acquiring encrypted data then there has not occurred a noticeable cyber incident under HIPAA, however, state laws may require notification.  Risk assessment is needed that accounts for the scope of the risk, the effectiveness of the encryption, the assessment of what data was actually compromised, and to what extent the data was compromised.  Each incident will require case-by-case assessment in order to determine compliance as well as vulnerabilities, including the notification requirements that will be triggered by the nature and extent of the ePHI and PHI compromise in unauthorized hands.
Lorenzo Law Firm is “Working to Protect your Business, Ideas, and Property on the Web." Copyright 2016, all rights reserved Lorenzo Law Firm, P.A.

Data Breach Insurance

Data breach insurance is becoming a growing concern and a topic for businesses to address their risk management administrative panoply. Considerations may sway a business towards a third-party insurance coverage or a first-party insurance coverage or both depending on the services provided.  Previously posted writing regarding the cyber insurance needs, we discussed the limits that the industry faces with their coverages and how businesses are not covered for cyber events.  Earlier this year the Fourth Circuit rendered a decision that sets a tone for insurers to keep a watch on regarding the commercial general liability insurance (CGLI) required the scope of coverage for data breaches.  That scope is the duty for the insurer to defend the insured business entity for a data breach event.

Initially, it is worth to note that cyber insurance or data breach incident insurance was created to address what general liability insurance did not intend to cover at first.  As these policies metamorphosed with the growth of cyber incident considerations, limitations are placed to account for the many different facets integral to a potential cyber incident, data breach, or sheer cyber negligence event.  The actual scope of coverage within a company’s CGLI is critical and is what was been battered about by the Fourth Circuit in Travelers Indemnity v. Portal Healthcare Solutions, LLC.[1]  The scope of coverage in question was whether data breaches were included in the coverage, and if so, to what extent and for what aspect.

Portal Healthcare Solutions, LLC, (Portal) is a company that provides electronic storage management of patient medical data.  Its  clients are medical service providers including hospitals, who after discovering that medical records were available on the web without password protection, filed a class action suit in the district court in Virginia.  Portal’s CGLI policy was under Traveler’s coverage policies.  Portal sued Travelers when it refused to cover Portal.  Portal argued that Traveler’s policy covered the cyber incident in question.  The District Court ruled for Portal depicting that Traveler’s coverage obligated it to defend Portal for the data breach incident.  Portal was seeking for Travelers to pay the amount that Portal was liable as a result of the data breach.

Companies considering CGLI will quickly recognize that the insurance vehicle enumerates conditions for liability coverage that include personal and advertising injury.  This addresses the duty of the insurer to pay and defend the insured for its liability and damages incurred as a result of violating privacy rights of customers and the like because of a publication of private information.  The contentious issue that insured companies and insurers wrestle when there is a data breach or cyber incident is to determine if there has occurred a publication of private information.

The facet of ‘publication’ was at issue as to whether it took place as understood.  What was clear from the facts is that the medical records were available on the Internet without password protection.  It was claimed that their availability was tantamount to a publication.   Portal argued that its policies with Travelers obligated Travelers to cover if Portal was liable for an incident where an injury occurred due to electronic publication of information or that causes publicity of a person’s private life.  By virtue that patients’ information was available by searching the Internet, the court deemed that it sufficed as a publication.  The court did not believe that there had to be intent to publish in order for it to constitute a publication.  According to the court, the simple fact of medical record exposure in the realm of the Internet is substantial for publication. The court found that because a publication had occurred by Portal exposing confidential medical records, Travelers became obligated to defend Portal under the policies.[2]

It is noteworthy to consider the precedent of the Recall Total Info case[3] where some transported records that were in containers fell off the vehicle on the highway, in light of the Portal case.  The court in Portal distinguished Recall from its instant case by virtue that the data in Portal was available on the Internet and was easily accessible whereas, in Recall, the data records in containers falling off a transport vehicle could not be construed as accessible and disclosed.   The court in Portal noted that the Connecticut Supreme Court in Recall held that absent information that demonstrates that the confidential data and records were accessed, the incident of private data in containers falling off a transport vehicle on the highway cannot be construed as a publication of private information creating a publicity.  The Court found that to be distinguishable from Portal’s case regarding the public disclosure of confidential records on the Internet.

Furthermore, the element of publicity is not the only limitation of CGLI policies.  The tenor of the knowledge or of the acts of the insured is also imperative to the viability of the insurer’s duty to cover.  For instance, in the Sony Corp. case[4], the court in New York ruled that the insurer did not have a duty to defend and pay for Sony because of  the actions of a hacker and not the acts of Sony.  The hacking was not considered to meet the occurrence of there being a publication or advertising of private information.  Another limitation is when the insured acts with intention and knowingly causing the breach of private information.   A Utah District court in the Federal Recovery Services case[5], held that the insurer was not liable to cover the insured where the insured acted knowingly, willfully and intentionally.

In essence, the policy condition of ‘publication’ was expanded by the Fourth Circuit and it also delineated limitations to the insurer’s duty to pay and defend.  The court noted the importance to consider insured’s actions pertaining to its intention, deliberateness, and awareness with the regard of the data breach incident.  It also noted the importance to distinguish the existence of the acts of third-parties regarding a data breach incident - an intervening factor - compared to where the insured’s actions resulted in a publication.   The absence of the insured’s intention to have private personal information placed on the Internet for anyone to see does not deny that a publication has occurred. Overall, the realm of coverage by CGLI policies will now have a broader appeal to consider amid the limitations for insurers’ duty to cover data breaches.

[1]35 F. Supp. 3d 765, 768 (E.D. Va. 2014).

[2] Id. at 769.

[3] 147 Conn. App. 450, 83 A.3d 664 (Ct. App. Conn. 2013) (aff’d Recall Total Information Mgmt., Inc. v. Federal Ins. Co., SC19201 (Conn. May 18, 2015)).

[4] Zurich Am. Ins. v. Sony Corp. of Am., No. 651982/2011 (NY Sup. Ct. Feb. 21, 2014).

[5] Travelers Property Casualty Co. v. Federal Recovery Servs., Inc., (D. Utah May 11, 2015).
Lorenzo Law Firm is “Working to Protect your Business, Ideas, and Property on the Web." Copyright 2016, all rights reserved Lorenzo Law Firm, P.A.

Data Breach Case Standing and Relevance of Harm

Data breach case standing is the critical element in determining the case’s viability to continue along with the relevance of harm incurred.  As data security breach occurrences amount with frequency, the menu of their handling also adds to the list of settled and or filed. The usual person is petrified when hearing that his or her personal identifiable information (PII) has been compromised in some way or another.  No matter if the compromised data was due to a company’s or agency’s disgruntled former employee, an unidentified hacker, or a nefariously loaded email, the concern is the same.  The internal or external manner of intrusion cause is nevertheless and intrusion to acquire PII of hundreds of not thousands of individuals.  The consternation that lingers is not to be weighed by the courts as having value.  This is despite the apparent value of PII in the open illicit market for social security, birthdate, and credit/debit card numbers.  The claim that by the simple fact of the misappropriation of PII there is a harm and that the PII has value to the plaintiff has historically not swayed courts to conclude that Article III criteria are met.

A plaintiff is required, under article III of the U.S. Constitution, to establish certain elements in federal court that constitute its ability to demonstrate case and controversy enough to stay on and be emblematic of “standing” in a case.   To support this critical element, the complaint must demonstrate that the plaintiff[s] have incurred an injury-in-fact that is a result of its connection to the act claimed to cause the injury and must also demonstrate that the sought after court’s decision can redress the harm by its own decision. The factor of injury-in-fact must be supported by actual or imminent injury and cannot be out of conjecture.[1]  A data breach event presents different circumstances that courts have had to adjust to in order to assess the element of incurred harm by plaintiffs’.

This analytical adjustment took place in the approach taken by the United States Supreme Court to address standing in a data breach case.  In Clapper, the Supreme Court set a standard regarding the injury claimed to have been incurred to be ‘certainly impending’.  The Court stated that it was not enough to make the conclusion that by virtue of the act to acquire PII one cannot make the logical conclusion that harm has occurred or that there is a likelihood or ability of the intruders to read the data and misuse it.  The Court also stated that the nature of the data requires assessment as well in order to ascertain the criticality of the data in unauthorized hands, especially the accessibility of Social Security and credit card numbers with the date of birth data. In Spokeo, despite there being a claimed violation of the D.C. Consumer Protection Procedures Acts, the Court determined that plaintiffs did not demonstrate a concrete harm to substantiate the determination of standing. In Remijas, the Seventh Circuit assessed the possibilities of events from a data breach.  In its analysis, it considered the loss of value of the time the plaintiffs incurred in all their involved efforts to address the breach and circumstances that arose out of the breach that required plaintiff’s action.  The Remijas court seriously considered the costs of time from work and effort by the plaintiff to deal with credit card companies, law enforcement, investigators, and governmental agencies regarding their misappropriated PII.  As the court assessed that the plaintiffs experienced the bother and torment of dealing with the circumstance of their PII being misappropriated.

The element of financial impact has been considered by the Minnesota District Court in In re Target Corp to substantiate the element of standing by virtue of demonstrated financial injuries, including charges, impaired bank account access, the impairment to pay bills, and incurred late payment charges and fees.  In determining the financial impact incurred by plaintiffs, the courts are peering into assessing if the costs were indeed incurred or if there were reimbursable costs.  In  P.F. Chang’s case, the court assessed if the claimed financial harm would uphold the requirement of standing when there were nonmonetary damages.  The court decided that actual injury cannot coexist with a reimbursable cost and it denied the plaintiff’s claims for the risk of identity theft and those associated with mitigation of damages.

In In re Zappos.com case, the court shed light on the guessing that is involved in predicting the time and actions unidentified assailant[s] and their capacities to interpret and use the data.  The noted that it is not absolutely clear that the stolen data would be misused or that it can be used to construe the event of harm to the plaintiff.  Such analysis could be attributed to the Anthem case determination in its second round where the court gave import to the value of PII in the open market and that the disclosure of that information has imputed economic injury.  That economic injury, however, was incurred by the merchants and not the plaintiffs.

No matter the twists and turns that standing has undergone in data breach cases the element of causation is unmovable to interpretation. The harm that a plaintiff incurs from a data breach is always open to analysis that begs to question of who, what, where, and how about the harm, value, and costs, including the impact of what future impact the data breach will have.

[1] See, Lujan v. Defenders of Wildlife, 504 U.S. 555, 560 (1992).

Lorenzo Law Firm is “Working to Protect your Business, Ideas, and Property on the Web." Copyright 2016, all rights reserved Lorenzo Law Firm, P.A.