FTC Deal Suggests Enterprises Could Be Liable for Poor Security

The Federal Trade Commission settled a lawsuit against ValueClick today for making email and advertising claims that were deceptive and misleading. But as with many other legal documents, the real impact of the decision might be in the fine print.

At $2.9 million, the FTC's settlement with ValueClick is larger than any previous lawsuit alleging violation of the CAN-SPAM Act. ValueClick repeatedly promised customers "free" items without disclosing the costs and obligations required to receive them, the Commission said.

Typical judgment against a spammer, right? But there's a twist: ValueClick was also found guilty of violating its own privacy policy, which promises to protect customer data and implement "reasonable security measures." The FTC nailed ValueClick for failing to encrypt data when its privacy policy promises encryption, and even for failing to fix vulnerabilities to SQL injection attacks.

In a nutshell, the decision means that enterprises could be found negligent for promising to protect user data but subsequently failing to implement the security precautions required to meet those promises. If you promise good security and then fail to provide it, it could weigh against you in court, the decision says.

"The FTC ruling sends a powerful message to the business community," says Scott Kamber, a partner at Kamber Edelson LLC, a legal firm that specializes in cyber security law.

"In the past, companies that failed to protect customer data have argued that they are immune from prosecution unless consumers can directly prove that they suffered harm from the breach of their personal information," Kamber explains. "Given that hackers are generally pretty good at covering their tracks, this argument -- if accepted -- would mean that few companies would have to account for their negligence."

With the ValueClick settlement, Kamber says, "the FTC has made clear that common sense will prevail over technical legal arguments, at least when it comes to governmental sanctions. We believe the FTC's ruling will help with the current cases we are prosecuting, as well as future ones we are contemplating."

The FTC has achieved many judgments against spammers, but in the past, most of these judgments have focused on the disparity between advertising claims and real-world results. In the ValueClick case, however, the Commission adds charges that the company failed to meet some fairly vague security promises made under its privacy policy -- a type of violation that might be common among non-spammers and legitimate companies as well.

"The FTC charged that ValueClick [and subsidiaries] Hi-Speed Media and E-Babylon misrepresented that they secured customers’ sensitive financial information consistent with industry standards," according to a statement by the Commission. "The FTC alleged the companies published online privacy policies claiming they encrypted customer information, but either failed to encrypt the information at all or used a non-standard and insecure form of encryption...

"The agency also charged that several of the companies’ e-commerce Web sites were vulnerable to SQL injection, a commonly known form of hacker attack, contrary to claims that the companies implemented reasonable security measures."

The settlement bars ValueClick and its subsidiaries from making misrepresentations about the use of encryption or other electronic measures to protect consumers’ information, and about the extent to which they protect personal information. The order also requires the companies to establish and maintain a comprehensive security program, and obtain independent third-party assessments of their programs for 20 years.

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