Obama Revives Data Breach Notice, Consumer Privacy, Security Proposals

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By Cheryl Bolen

Jan. 12 — President Barack Obama Jan. 12 unveiled a broad list of data security and privacy policy efforts and legislative proposals aimed at improving the security of consumers' electronic information, tackling identity theft and protecting privacy online and in the classroom.

“If we’re going to be connected, then we need to be protected,” Obama said in remarks at the offices of the Federal Trade Commission

Most of what Obama proposed isn't new. He renewed calls for Congress to pass stalled proposals, such as an updated data breach notification law proposal, which has been considered by federal lawmakers for over a decade in various forms, and a nearly three-year old consumer privacy bill of rights.

Democratic members of Congress welcomed the initiative, as did many Republican lawmakers who pledged to support the effort.

Benefits and Risks

With the benefits of the digital age come risks: Major companies get hacked and personal information, including financial information, gets stolen, he said. “And the problem is growing, and it costs us billions of dollars,” the president said. “This is a direct threat to the economic security of American families and we’ve got to stop it.”

The proposals and initiatives announced by the White House drew immediate praise from the Center for Democracy & Technology (CDT), which said it has long called for comprehensive consumer privacy legislation and it will support the president’s efforts.

“For too long, it has been America’s companies taking the lead in protecting the privacy of consumers without clear or consistent guidance from government,” said Nuala O'Connor, president and chief executive officer of the CDT. “It’s time we have comprehensive privacy legislation to help build consumer trust, promote technological innovation, and create a digital framework that respects the right to privacy in our daily lives.”

List of Bills, Initiatives

The proposals include:

• the Personal Data Notification & Protection Act—to set a national breach notice standard with a 30-day deadline for informing affected individuals;

• an Identifying and Preventing Identity Theft initiative—to make credit scores more easily available to consumers;

• the Student Digital Privacy Act—to restrict the use of data collected from students to educational purposes;

• Private Sector Commitments to Help Enhance Student Privacy—from 75 companies pledging to protect student data;

• Department of Education Tools—to empower educators and protect students through model terms of service;

• a Voluntary Code of Conduct for Smart Grid Customer Data Privacy—to protect consumer information collected through the electricity smart grid;

• a Consumer Privacy Bill of Rights—which revises the administration's 2012 proposal;

•  a Federal Payments Security effort to help drive the market forward; and

• new Measures to Prevent Identity Theft—through Federal Trade Commission one-stop-shop consumer assistance and enhanced federal investigation efforts.

On Jan. 13, at the Department of Homeland Security, the president announced separate efforts to improve efforts on working with the private sector to better defend against cyberattacks.

Breach Notice Proposal

The breach notice proposed legislation would create a single national standard for when companies that handled covered sensitive personally identifiable information of more than 10,000 individuals during any 12-month period would be obligated to notify individuals of breaches of their personal information. Companies covered by the breach notice provisions of the Health Information Technology for Economic and Clinical Health Act would be exempt from the proposed law.

The proposal contains a risk of harm standard that would exempt companies from providing notice to individuals if an assessment concluded “there is no reasonable risk” that the breach harmed or will harm the individuals whose information was affected by a breach. A presumption that there is no reasonable risk could be established by showing that the breached data were “rendered unusable, unreadable, or indecipherable through a security technology or methodology generally accepted by experts in the field of information security.”

Even if a company determined that it was exempt from notifying individuals of a breach, the proposed law would require within 30 days of discovery of the breach written notification to the FTC of the risk assessment and decision not to notify individuals.

The FTC and state attorneys general would be granted enforcement authority over the proposed law, including allowing the states to seek civil penalties for failing to notify individuals of $1,000 per individual per day up to $1 million per breach incident.

Sen. Bill Nelson (D-Fla.), ranking member of the Senate Commerce Committee, Jan. 13 introduced a similar breach notice measure.

Enforcement, State Law Preemption 

Robert Cattanach, a partner at Dorsey & Whitney LLP in Minneapolis, told Bloomberg BNA the breach notification bill, although long overdue, may not receive the support it once might have from the business community.

The legislation “is likely to get stalled in the inevitable disagreement over how it would be enforced” by either the Federal Trade Commission or through class actions, Cattanach, who previously worked as a trial attorney for the Department of Justice, said. The Obama proposal doesn't include a provision to allow individuals to file lawsuits.

Whether the proposal would preempt the breach notice laws in 47 states and the District of Columbia “may be a deal-killer either way,” he said. The proposal includes a provision to preempt state laws.

David French, senior vice president for government relations at the National Retail Federation, applauded the president and the administration for their continued efforts to push and enact cyber and data security policies.

“The National Retail Federation has long-supported a national and preemptive data breach notification standard and law,” he said.

Sen. Patrick J. Leahy (D-Vt.), ranking member of the Senate Judiciary Committee, said in a Jan. 12 statement that he had introduced data privacy and security legislation in each of the past four sessions of Congress.

“The president’s new initiative on data breach notification is one piece of the necessary response to this serious problem, but we also need to make sure we protect consumers private information before breaches happen,” Leahy said. “For that reason, my legislation has required companies to implement data security measures to protect personal information from cyber attacks in the first place.”

In a Jan. 12 statement, Sens. Richard Blumenthal (D-Conn.) and Edward J. Markey (D-Mass.), both members of the Senate Commerce Committee, announced plans to reintroduce the Personal Data Protection and Breach Accountability Act.

Privacy Bill of Rights

Obama said that within 45 days, he would propose revised legislation to establish a consumer privacy bill of rights, the White House said.

The Obama administration first proposed the consumer privacy bill of rights legislation in February 2012.

The Department of Commerce will soon complete its public consultation on revised draft legislation enshrining certain principles into law, the White House said in its statement.

In his remarks, Obama said that in working with the private sector and advocacy groups, his administration had identified some basic principles to both protect personal privacy and ensure that industry can keep innovating.

“For example, we believe that consumers have the right to decide what personal data companies collect from them and how companies use that data, that information; the right to know that your personal information collected for one purpose can’t then be misused by a company for a different purpose; the right to have your information stored securely by companies that are accountable for its use,” the president said.

Erica D. Klein, a partner in the intellectual property practice at Kramer Levin Naftalis & Frankel LLP in New York, told Bloomberg BNA Jan. 12 the data protection and security issues under consideration by the president highlight the importance of data security for all consumer-facing companies.

“Whether companies continue to be permitted to develop their own data protection protocols, or whether the president’s initiatives establish national standards, consumers demand transparency, and a company’s reputation can be strongly affected by its policies and practices in this area,” Klein said in a statement. “The collection and safeguarding of consumer data is an integral component of a successful brand,” she said.

As for the student privacy protection effort, Randi Weingarten, president of the American Federation of Teachers, said in a Jan. 12 statement that integrating technology into the classroom shouldn't be a marketing or advertising opportunity for tech companies.

To contact the reporter on this story: Cheryl Bolen in Washington at cbolen@bna.com

To contact the editor responsible for this story: Donald G. Aplin at mailto:%20daplin@bna.com

A White House fact sheet on the administration's privacy and security initiative is available at http://www.whitehouse.gov/the-press-office/2015/01/12/fact-sheet-safeguarding-american-consumers-families.

The draft Personal Data Notification & Protection Act is available at http://www.whitehouse.gov/sites/default/files/omb/legislative/letters/updated-data-breach-notification.pdf. A section-by-section analysis of the breach notice proposal is available at http://www.whitehouse.gov/sites/default/files/omb/legislative/letters/updated-data-breach-notification-section-by-section.pdf.

The Energy Department's final “Data Privacy and the Smart Grid: A Voluntary Code of Conduct” is available at http://energy.gov/sites/prod/files/2015/01/f19/VCC%20Concepts%20and%20Principles%202015_01_08%20FINAL.pdf.