Cyber Security for Your Clients: Business Lawyers Advising Business Clients

www.solidcounsel.com
“Security and IT protect companies’ data;
Legal protects companies from their data.”

“An ounce of prevention is cheaper than
the first day of litigation.”

KEY POINT: Attorney’s may have privilege
“Target has demonstrated . . . that the work of the Data Breach
Task Force was focused not on remediation of the breach . . .
but on informing Target’s in-house and outside counsel about
the breach so that Target’s attorneys could provide the company
with legal advice and prepare to defend the company in litigation
that was already pending and was reasonably expected to
follow.”
In re Target Corp. Customer Data Breach Litigation
A.C. Privilege / Work Product

Peters v. St. Joseph Services (S.D. Tex. 2015)
Remijas v. Neiman Marcus Group, LLC (7th Cir. 2015)
Whalen v. Michael Stores Inc. (E.D.N.Y. 2015)
In re SuperValu, Inc. (D. Minn. 2016)
Anthem Data Breach Litigation (N.D. Cal. 2016) (Koh)
Data Breach Consumer Litigation Battleship
Spokeo v. Robins, 136 S.Ct. 1540 (2016)
Tangible or intangible harm but concrete & particularized
Lewert v. P.F. Chang’s China Bistro Inc. (7th Cir. 2016)
Galaria v. Nationwide Mutual Ins. Co. (6th Cir. 2016)

Recent Legal Developments
Takeaway: Standard is reasonableness.
• In re Target Data Security Breach Litigation (Financial
Institutions) (Dec. 2, 2014)
• Companies have a duty to be reasonably informed and take
reasonable measures to protect against cybersecurity risks.
• It’s the diligence, not the breach, that counts.
• The court found duties to
• Reasonably protect others’ data
• Not disable security devices (i.e., if have it, use it)
• Respond when alerted of an attack

Takeaway: Must have basic IT security.
• F.T.C. v. Wyndham Worldwide Corp., 799 F.3d 236 (3rd Cir. Aug.
24, 2015).
• The FTC has authority to regulate cybersecurity under the
unfairness prong of § 45(a) of the FTC Act.
• Companies have fair notice that their specific cybersecurity
practices could fall short of that provision.
• 3 breaches / 619,000 records / $10.6 million in fraud
• Rudimentary practices v. 2007 guidebook
• Website Privacy Policy misrepresentations

Takeaway: Must have internal network controls.
• F.T.C. v. LabMD (July 2016 FTC Commission Order)
• LabMD had 1 employee using LimeWire, Tiversa obtained file
with PHI information and provided to the FTC.
• “LabMD’s data security practices constitute an unfair act or
practice within the meaning of Section 5 of the FTC Act. We
enter an order requiring that LabMD notify affected consumers,
establish a comprehensive information security program
reasonably designed to protect the security and confidentiality of
the personal consumer information in its possession, and obtain
independent assessments regarding its implementation of the
program.”

Takeaway: Must have written policies & procedures.
• S.E.C. v. R.T. Jones Capital Equities Management, Consent
Order (Sept. 22, 2015).
• “R.T. Jones failed to adopt written policies and procedures
reasonably designed to safeguard customer information.”
• R.T. Jones violated the Securities Act’s “Safeguards Rule”
• 100,000 records vulnerable; no reports of actual harm
• $75,000 penalty
• Cease and desist having any future violations

Takeaway: Must have written incident
response plan.
• S.E.C. v. R.T. Jones Capital Equities Management,
Consent Order (Sept. 22, 2015).
• Firms “need to anticipate potential cybersecurity events
and have clear procedures in place rather than waiting to
react once a breach occurs.”

Takeaway: Must evaluate third-parties’ security.
• In re GMR Transcription Svcs., Inc., Consent Order (Aug. 14,
2014).
• FTC’s Order requires business to follow 3 steps when working
with third-party service providers:
• Investigate before hiring data service providers
• Obligate data service providers to adhere to the appropriate
level of data security protections
• Verify (AUDIT!) that the data service providers are complying
with obligations (contracts)

Takeaway: Know your contractual obligations.
• Addendum to business contracts
• Common names: Data Security & Privacy Agreement; Data
Privacy; Cybersecurity; Privacy; Information Security
• Common features:
• Defines subject “Data” being protected in categories
• Describes acceptable and prohibited uses for Data
• Describes standards for protecting Data
• Describes obligations and responsibility for breach of Data
• Requires binding third-parties to similar provisions

KEY POINT: Attorney’s may have privilege
“Target has demonstrated . . . that the work of the Data Breach
Task Force was focused not on remediation of the breach . . .
but on informing Target’s in-house and outside counsel about
the breach so that Target’s attorneys could provide the company
with legal advice and prepare to defend the company in litigation
that was already pending and was reasonably expected to
follow.”
In re Target Corp. Customer Data Breach Litigation

Officer & Director Liability
KEY POINT: “boards that choose to ignore, or minimize, the importance of cybersecurity
oversight responsibility, do so at their own peril.” SEC Commissioner Luis A. Aguilar, June 10,
2014.
• Heartland Payment Systems, TJ Maxx, Target, Home Depot, Wyndham
• Derivative claims premised on the harm to the company from data breach.
• Caremark Claims:
▪ Premised on lack of oversight = breach of the duty of loyalty and good faith
▪ Cannot insulate the officers and directors = PERSONAL LIABILITY!
▪ Standard:
(1) “utterly failed” to implement reporting system or controls; or
(2) “consciously failed” to monitor or oversee system.
$4.8 Billion
Deal?

Game Changer?

The Game Changer?
New York Department of Financial Services Cybersecurity
Requirements for Financial Services Companies + [fill in]
• All NY “financial institutions” + third party service providers
• Third party service providers – examine, obligate, audit
• Establish Cybersecurity Program (w/ specifics)
• Logging, Data Classification, IDS, IPS
• Pen Testing, Vulnerability Assessments, Risk Assessment
• Encryption, Access Controls
• Adopt Cybersecurity Policies
• Designate qualified CISO to be responsible
• Adequate cybersecurity personnel and intelligence
• Personnel Policies & Procedures, Training, Written IRP
• Board or Senior Officer Certify Compliance

“You don’t drown by
falling in the water;
You drown by staying
there.” – Edwin Louis Cole

• Board of Directors & General Counsel, Cyber Future Foundation
• Board of Advisors, NorthTexas Cyber Forensics Lab
• Cybersecurity & Data Privacy LawTrailblazers, National LawJournal (2016)
• SuperLawyersTop 100 Lawyers in Dallas (2016)
• SuperLawyers 2015-16 (IP Litigation)
• Best Lawyers in Dallas 2014-16, D Magazine (Digital Information Law)
• Council, Computer &Technology Section, State Bar ofTexas
• Privacy and Data Security Committee of the State Bar ofTexas
• College of the State Bar ofTexas
• Board of Directors, CollinCounty Bench Bar Foundation
• Past Chair, Civil Litigation & Appellate Section, Collin County Bar Association
• Information Security Committee of the Section on Science &Technology
Committee of the American Bar Association
• NorthTexas Crime Commission, Cybercrime Committee
• Infragard (FBI)
• International Association of Privacy Professionals (IAPP)
• Board of Advisors Office of CISO, Optiv Security
• Editor, Business Cybersecurity Business Law Blog
Shawn Tuma
Cybersecurity Partner
Scheef & Stone, L.L.P.
214.472.2135
shawn.tuma@solidcounsel.com
@shawnetuma
blog: www.shawnetuma.com
web: www.solidcounsel.com

Cyber Security for Your Clients: Business Lawyers Advising Business Clients

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Cyber Security for Your Clients: Business Lawyers Advising Business Clients