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FTC gets judicial thumbs-up to SUE firms over data breaches

If you don't take 'reasonable and appropriate' measures, get ready for court

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In a ruling this week, a US federal judge affirmed the Federal Trade Commission's authority to file lawsuits against companies for failing to take "reasonable and appropriate" data security measures, rejecting a claim that the agency lacks that power.

District Judge Esther Salas of the US District Court of New Jersey denied Wyndham Worldwide's motion to dismiss a 2012 suit filed against it by the FTC, clearing the way for the hotelier to stand trial on charges of deceptive and unfair business practices.

Wyndham had argued that such lawsuits were outside the FTC's discretion, likening the case to FDA v Brown & Williamson Tobacco Corp., in which the Supreme Court found that the Food and Drug Administration lacked the authority to regulate cigarettes.

But in a 42-page opinion [PDF], Judge Salas disagreed, saying, "the Court rejects this challenge to the FTC's authority because the circumstances here differ from those in Brown & Williamson."

The FTC has accused Wyndham – which operates a number of hotel chains including Days Inn, Howard Johnson, Ramada, Super 8, and Travelodge – of "repeated failures" to protect its customers' data that led to multiple data breaches between 2008 and 2010, at least one of which went undetected for almost four months.

Among the agency's claims are that Wyndham allowed its employees to use easy-to-guess passwords, left its systems connected to the internet without a firewall, failed to inventory its systems regularly, and in some cases didn't even know where its servers were physically located.

If those charges aren't bad enough, the FTC also alleges that Wyndham stored credit card information on its servers in unencrypted plain text, essentially leaving it wide open for theft. In all, the regulator says, more than 600,000 customer accounts were ultimately compromised.

The FTC alleges that Wyndham's practices were "unfair" because they were "likely to cause substantial injury to consumers that consumers cannot reasonably avoid themselves." The agency also says Wyndham's privacy policy led customers to believe their sensitive data was more secure than it was, which the FTC claims was "deceptive."

In her ruling on Monday, Judge Salas affirmed that the FTC had satisfied the legal requirements to bring both those claims to trial.

Should Wyndham be found guilty, the FTC seeks an injunction preventing any further violations, plus "such relief as the Court finds necessary to redress injury to consumers resulting from Defendants' violations of the FTC Act, including but not limited to, rescission or reformation of contracts, restitution, the refund of monies paid, and the disgorgement of ill-gotten monies."

For its part, Wyndham Worldwide says the FTC's claims are "without merit." ®

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