FTC watchers and data security mavens, it’s the decision you’ve been waiting for. The United States Court of Appeals for the Third Circuit has issued a ruling in the Commission’s favor in FTC v. Wyndham Worldwide Corporation.
The FTC sued the hospitality company and three subsidiaries, alleging that data security failures led to three data breaches at Wyndham hotels in less than two years. According to the complaint, those failures resulted in millions of dollars of fraudulent charges on consumers’ credit and debit cards – and the transfer of hundreds of thousands of consumers’ account information to a website registered in Russia.
In 2014, a federal District Court in New Jersey denied Wyndham’s motion to dismiss the FTC action. The Third Circuit agreed to hear an immediate appeal on two issues: “whether the FTC has authority to regulate cybersecurity under the unfairness prong of § 45(a); and, if so, whether Wyndham had fair notice its specific cybersecurity practices could fall short of that provision.”
If your clients are concerned about data security – and they should be – you’ll want to read the entire opinion. But the long and the short of it is that the Third Circuit upheld the District Court’s ruling that the FTC could use the prohibition on unfair practices in section 5 of the FTC Act to challenge the alleged data security lapses outlined in the complaint. The Court also rejected Wyndham’s fair notice argument.
Of course, the case is still pending before the District Court, but the Third Circuit ruling affirms important principles for how the FTC Act applies in the data security arena.
The decision is a must-read for business executives and attorneys.