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2016 Cybersecurity Year in Review, and Data Privacy Trends to Watch in 2017

With 2016 in the rear-view mirror, we have been reflecting on the many data privacy and cybersecurity legal developments of the past year, both in the U.S. and internationally, as well as focusing on trends to watch in the new year. With best wishes for a Happy New Year from all of us, we present a number of highlights from 2016, and suggest a few areas to watch in 2017.

U.S. Courts Wrestle With Law Enforcement Access to Data

Debate over law enforcement access to data stored by technology companies was perhaps the most visible privacy and cybersecurity issue of 2016, with far-reaching implications in both the U.S. and abroad. In July, the Second Circuit issued a decision in Microsoft’s challenge to a warrant issued under the Electronic Communications Privacy Act (ECPA), seeking email content stored in Ireland. The Second Circuit unanimously held that ECPA warrants cannot compel U.S. providers to disclose the contents of customer communications stored on foreign servers. In 2017, we expect that decision to have significant implications for U.S. technology companies, as well as consumers and companies that store data with U.S.-based providers. The government has sought rehearing en banc, and also has indicated that it intends to submit legislation to Congress to address the implications of the decision.  Congress has considered related issues in the International Communications Privacy Act.

Apple also engaged in a high-profile court battle with the government early in 2016 when the company refused the FBI’s request to unlock a terror suspect’s iPhone, though the dispute ended in March without a court decision when the FBI announced it had accessed the device without Apple’s assistance.  Congress continues to grapple with the consequences of that case to include considering several encryption-related legislative proposals.

U.S. Supreme Court Addresses Privacy Standing in Spokeo

The U.S. Supreme Court issued its highly anticipated decision in Spokeo in May, addressing whether plaintiffs have standing to pursue statutory damages even in the absence of harm under the Fair Credit Reporting Act (FCRA). The Court reaffirmed that constitutional standing in federal court requires “concrete” (i.e., actual) harm and offered several guiding principles to assist lower courts in determining whether standing requirements have been met.  Although the case specifically dealt with the FCRA, Spokeo has significant implications in privacy and data breach litigation because numerous federal privacy laws have been construed to allow statutory damages even in the absence of actual harm.  Lower courts have begun applying the decision in data breach cases, including a recent district court ruling that a named plaintiff’s allegations that stolen personal information was used to file a false tax return were sufficient to impart standing under Spokeo.  In 2017, we expect this process to continue, as lower courts continue to interpret the Supreme Court’s decision.

A New Framework for EU-U.S. Data Transfers

The EU-U.S. Privacy Shield, a new framework for the transfer of personal data between the EU and the U.S., was announced in February and finalized in July.  Negotiators in the EU and U.S. worked on an accelerated timeline following the invalidation of the Safe Harbor in late 2015 resulting in the Privacy Shield—a significantly more stringent framework than its predecessor.  Companies began self-certifying adherence to the Privacy Shield in August, and as of this post more than 1,300 companies have signed up at the Department of Commerce’s website.  In 2017, we see continued uncertainty in this area.  The Privacy Shield faces a legal challenge in the European Court of Justice, and another cross-border mechanism—standard contractual clauses—also is subject to an EU court action.  The Privacy Shield itself was based, in part, on an exchange of letters between the Obama Administration and the European Commission relating to mass surveillance, and it remains to be seen if the Trump Administration will continue the commitments made in those letters.  Relatedly, the European Parliament approved the EU-U.S. Umbrella Agreement in December—a framework for the exchange of personal data for law-enforcement (including anti-terrorism) purposes between the EU and U.S.

Sweeping New Data Protection Laws Approved in Europe

The European Parliament passed into law the General Data Protection Regulation (GDPR) in April, a sweeping new set of privacy and data security rules that will take effect in mid-2018.  Unlike the EU Data Protection Directive which it replaces, the GDPR for the most part will have direct effect throughout the EU without requiring national implementation legislation.  Companies doing business in (or with companies operating in) the EU have begun preparing for compliance with the new requirements, and the Article 29 Working Party released the first set of guidance on the GDPR in December.  In 2017, we expect the Article 29 Working Party to continue to fill in some of the blanks left in the GDPR, and we also expect companies to intensify their preparation for the mid-2018 effective date of this landmark legislation.

FTC’s Data Security Authority Tested (Again) in LabMD

 Following the Third Circuit’s decision affirming the FTC’s authority to regulate corporate data security in Wyndham last year, the FTC sought to further bolster its data security authority in LabMD.  In July, the Commission unanimously vacated a prior Administrative Law Judge decision and found that LabMD’s actions were “unfair” under Section 5 of the FTC Act.  In November, however, the Eleventh Circuit stayed enforcement of the FTC’s LabMD order, finding that LabMD was likely to succeed on the merits because the FTC’s interpretations of aspects of the FTC Act relating to its data security authority were likely not reasonable. The case will now proceed on the merits, but the grant of the stay suggests that the Eleventh Circuit may be receptive to LabMD’s arguments for ultimate reversal of the LabMD order.  This could produce a circuit split between the Eleventh Circuit and the Third Circuit (which decided the Wyndham case), and thereby provide a basis for an attempt to secure Supreme Court review of the FTC’s jurisdiction.  Moreover, this case could provide a vehicle for a new FTC, with a Republican majority, to reconsider the agency’s current aggressive approach on “unfairness” as applied to data security.

Newly Established Cybersecurity Requirements and Guidelines

A number of U.S. states and standard-setting organizations issued broadly applicable cybersecurity requirements and guidelines in 2016.  In February, as part of the release of its 2016 Data Breach Report, the Office of the Attorney General for California established a de facto standard that companies doing business in California must, at a minimum, adopt twenty specific security controls established by the Center for Internet Security in order to have “reasonable” security practices in California.  And New York State proposed first-in-the-nation cybersecurity regulations that contain several mandatory security requirements for financial services institutions—those institutions that are regulated by New York banking, insurance, or financial services laws—which are currently being revised following industry comments and are scheduled to take effect in March 2017.

At the federal level, in October, the Department of Defense (DoD) finalized its safeguarding and cyber incident reporting obligations, requiring DoD contractors to implement specific security controls for information systems that store, process, or transmit DoD’s data and to report actual or possible cybersecurity incidents involving such data to DoD within 72 hours.  And in the coming year, similar security controls and reporting requirements will likely be required for all government contractors, as a September rule promulgated by the National Archives and Record Administration (NARA) set the stage for a Federal Acquisition Regulation (FAR) clause that will likely mirror DoD’s requirements.  In November, the National Institute of Standards and Technology (NIST) released guidance for small businesses on cybersecurity preparedness, including a list of “recommended practices” that are applicable not just to small businesses, but entities of all sizes.

New Cybersecurity and Privacy Laws and Regulations in China

As expected, authorities in China were active in passing a new Cybersecurity Law and proposing new cybersecurity and privacy regulations in 2016.  In November, the Standing Committee of China’s National People’s Congress passed China’s first Cybersecurity Law (the “Law”), which will take effect starting June 1, 2017.  Described as China’s “fundamental law” in the area of cybersecurity, the new Law articulates the government’s priorities with respect to “cyberspace sovereignty,” consolidates existing network security-related requirements (covering both cyber and physical aspects of networks), and grants government agencies greater power to regulate cyber activities.  It is the first Chinese law that systematically lays out the regulatory requirements on cybersecurity, subjecting many previously under-regulated or unregulated activities in cyberspace to government scrutiny.  At the same time, it seeks to balance the dual goals of enhancing cybersecurity and developing China’s digital economy, which relies heavily on the free flow of data.

China’s National Information Security Standardization Technical Committee (NISSTC) drafted a Personal Information Security Standard, a non-binding standard for data privacy and security practices of companies operating in China.  The NISSTC also released seven draft standards for comment in December, with a public comment period running until February 2, 2017.  The Cyberspace Administration of China (CAC) has also been active in 2016, issuing new rules for mobile apps in July, and draft regulations aimed at protecting minors in cyberspace in October. Finally, in August China’s State Administration of Industry and Commerce (SAIC) released draft regulations for public comment that would amend consumer protection laws to, among other things, supplement existing privacy obligations for companies operating in China.

FCC Releases Broadband Privacy Rules

The FCC’s increasing focus on privacy issues continued in 2016 with the release of broadband privacy rules.  The new rules, which were formally proposed in April, regulate the privacy practices of broadband Internet Service Providers (ISPs), including requirements to obtain consent for certain uses of consumer data and to adhere to certain data security practices.   The rules were adopted by the Commission in a 3-2 party-line vote in October, so their fate is quite uncertain under the incoming Republican administration.  Given that petitions for reconsideration currently are pending before the FCC and will remain so until the change in Administration, these rules could be one of the first areas in which the new FCC makes its mark on the policies of the Obama-era Commission.

Connected Devices and The Internet of Things

2016 saw several developments relating to the Internet of Things (IoT), such as internet-connected refrigerators and thermostats, which present unique opportunities and challenges from a privacy and cybersecurity perspective.  In April, the U.S. Department of Commerce issued a request for public comment on the benefits, challenges, and potential government roles for IoT, and the U.S. Senate Commerce Committee approved a bill (which remains pending) to establish a working group to study and facilitate IoT growth.  Around the same time, the European Commission released a series of industry-related initiatives addressing IoT, among other things.  And in November, NIST released cybersecurity guidance for IoT, and the Broadband Internet Technical Advisory Group released another report detailing the unique security and privacy challenges posed by IoT.  In 2017, we expect the focus on connected devices to escalate, particularly given the emergence of driverless cars and other innovative technologies.

© 2022 Covington & Burling LLPNational Law Review, Volume VII, Number 5
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About this Author

Repeatedly ranked as having one of the best privacy practices in the world, Covington combines exceptional substantive expertise with an unrivaled understanding of the IT industry, and of e-commerce and digital media business models in particular.  Our practice provides exceptional coverage of all of the substantive areas of privacy, including IT/technology, data security, financial privacy, health privacy, employment privacy, litigation and transactions.  One of our core strengths is the ability to advise clients on relevant privacy and data security rules worldwide,...

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