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On October 5, 2022, Joe Sullivan, Uber’s former Chief Security Officer, was convicted of “obstruction of the proceedings of the Federal Trade Commission and misprision of felony in connection with the attempted cover-up of a 2016 hack at Uber.” He faces up to eight years in prison. The conviction marks the first time that an individual company executive has faced criminal charges related to an information security breach.

While this conviction could be viewed as a slippery slope toward more cases—both civil and criminal—where Chief Security Officers or Chief Information Security Officers are found personally liable for company data breaches that happen on their watch, Sullivan’s actions went beyond simple failure to stop a breach or even failure to report it. As the prosecutor in the case, US Attorney Stephanie Hinds explained, “Sullivan affirmatively worked to hide the data breach from the Federal Trade Commission (FTC) and took steps to prevent the hackers from being caught. We will not tolerate the concealment of important information from the public by corporate executives more interested in protecting their reputation and that of their employers than in protecting users. Where such conduct violates the federal law, it will be prosecuted.” By bringing these charges the government was sending a message that it views companies as responsible for the data they collect from consumers and expects those companies to be transparent and honest when dealing with a known data breach.

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If 2021 is any indication, the Federal Trade Commission (FTC) shows no signs of slowing down in its pursuit of enforcement actions to address a wide variety of alleged privacy and cybersecurity issues. Under the leadership of new chair, Lina Khan, the past year has seen the FTC engage is a variety of new and expanding enforcement actions exhibiting an increasing interest in regulating data privacy and security, as well as other consumer protection areas.

While the FTC has become the de facto regulator for entities that are not subject to other sector-specific regulations, the Commission’s assertion of authority over privacy and cybersecurity matters is limited by its statutory powers under section 5 of the FTC Act, which prohibits “unfair or deceptive acts or practices” that injure consumers. The FTC’s expansion of that authority to cover privacy and cybersecurity matters has only grown more aggressive in recent years but has also become the subject of close judicial review. Notably, in 2018, the Eleventh Circuit ruled, in LabMD, Inc. v. FTC, that the FTC did not have unlimited authority to dictate the details of companies’ privacy and cybersecurity protections. Earlier this year, the Supreme Court, in AMG Capital Mgmt., LLC v. FTC, held that Section 13(b) of the FTC Act does not allow the FTC to obtain monetary relief in federal court. The FTC has asked Congress to use its authority to remedy this ability, and claims that this constitutes a loss of its “best and most efficient tool for returning money to consumers who suffered losses as a result of deceptive, unfair, or anticompetitive conduct.”

The FTC has pushed for a more expansive view of its authority for several years, and this has only intensified over the last year. Even before the AMG decision, the FTC had been advocating for Congress to address the gap in Section 13(b), which only explicitly provides for the FTC’s ability to order injunctive relief and is silent on monetary relief. While waiting on Congress to address the issue, we expect for the FTC to continue to bring enforcement actions and order restitution and disgorgement via their Section 19 authority, which provides for these types of relief, but only after a final cease-and-desist order, which can be challenged and is subject to review of appellate courts.

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The Future of US Federal and State Regulation of Data Privacy

During the November 3rd session of Ropes & Gray’s conference, “The Future of Global Data Protection: Conflict or Coherence?” Ropes & Gray partner Chong Park moderated a discussion with Ropes & Gray’s data protection partner Fran Faircloth and Minh Ta, Vice President of Global Governmental Affairs at the Carlyle Group regarding the future of federal and state regulation of data privacy in the United States.

The group all agreed that there should be a comprehensive, US federal data privacy law, but expressed opposing views on the likelihood of such a federal law being implemented in the near future. Minh analogized it to the infrastructure bill debate in the United States, noting that there is bipartisan consensus to address the issue on some level, but the problem lies in the details—i.e., what specifically should be regulated is where people disagree. Fran, on the other hand, expressed a bit more optimism that a federal law on privacy would be passed in the future, but agreed the likelihood of imminent passage is unlikely. She noted that as more states pass their own versions of privacy laws, that eventually as a result a federal law would be passed.

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