Court: FTC can bring down the hammer on companies with sloppy cybersecurity

Hotel chain Wyndham had challenged the FTC's authority to mandate cybersecurity standards

The U.S. Federal Trade Commission has the authority to take action against companies that fail to protect customer data, an appeals court ruled Monday.

The U.S. Court of Appeals for the Third Circuit upheld the FTC's 2012 lawsuit against hotel and time-share operator Wyndham Worldwide. The FTC filed a complaint against Wyndham for three data breaches in 2008 and 2009 that led to more than US $10.6 million in fraudulent charges.

The appeals court ruling, upholding a 2014 district court decision, suggests the FTC can hold companies responsible for failing to use reasonable security practices.

Wyndham was one of two companies that had challenged the FTC's authority to enforce cybersecurity standards under the unfair and deceptive practices provisions of the FTC Act. Critics have argued the agency has no clearly defined cybersecurity standards for companies to follow.

Representatives of Wyndham and the FTC didn't immediately respond to requests for comment on the appeals court ruling.

The FTC accused the hotel operator of using cybersecurity practices that "unreasonably and unnecessarily exposed consumers' personal data to unauthorized access and theft."

The company's hotels stored payment card information in clear, readable text, and it used easily guessed passwords to access its property management systems, the FTC alleged. The company also failed to use "readily available security measures" such as firewalls to limit access between the company's property management systems, its corporate network and the Internet, the FTC charged.

Wyndham's privacy policy said the company safeguards customer data "using industry-standard practices," the FTC said.

Wyndham argued on appeal that its conduct did not meet the congressional definition in the FTC Act of "unfair." The company argued that its actions were not unfair because it was the victim of criminals.

Appeals court Judge Thomas Ambro rejected that argument. The company "offers no reasoning or authority for this principle, and we can think of none ourselves," he wrote in Monday's decision.

A company's action can be unfair if it is likely to cause customer injury, and the injuries caused by a third party were foreseeable, he wrote.

Ambro also rejected Wyndham's argument that the FTC's cybersecurity rules are too vague. The unfairness standard in the FTC Act focuses on the substantial injury to consumers that they cannot reasonably avoid themselves, he wrote. "While far from precise, this standard informs parties that the relevant inquiry here is a cost-benefit analysis," he added.

Join the newsletter!

Error: Please check your email address.
Rocket to Success - Your 10 Tips for Smarter ERP System Selection
Keep up with the latest tech news, reviews and previews by subscribing to the Good Gear Guide newsletter.

Grant Gross

IDG News Service
Show Comments

Most Popular Reviews

Latest Articles

Resources

PCW Evaluation Team

Ben Ramsden

Sharp PN-40TC1 Huddle Board

Brainstorming, innovation, problem solving, and negotiation have all become much more productive and valuable if people can easily collaborate in real time with minimal friction.

Sarah Ieroianni

Brother QL-820NWB Professional Label Printer

The print quality also does not disappoint, it’s clear, bold, doesn’t smudge and the text is perfectly sized.

Ratchada Dunn

Sharp PN-40TC1 Huddle Board

The Huddle Board’s built in program; Sharp Touch Viewing software allows us to easily manipulate and edit our documents (jpegs and PDFs) all at the same time on the dashboard.

George Khoury

Sharp PN-40TC1 Huddle Board

The biggest perks for me would be that it comes with easy to use and comprehensive programs that make the collaboration process a whole lot more intuitive and organic

David Coyle

Brother PocketJet PJ-773 A4 Portable Thermal Printer

I rate the printer as a 5 out of 5 stars as it has been able to fit seamlessly into my busy and mobile lifestyle.

Kurt Hegetschweiler

Brother PocketJet PJ-773 A4 Portable Thermal Printer

It’s perfect for mobile workers. Just take it out — it’s small enough to sit anywhere — turn it on, load a sheet of paper, and start printing.

Featured Content

Product Launch Showcase

Latest Jobs

Don’t have an account? Sign up here

Don't have an account? Sign up now

Forgot password?