The Federal Communications Commission is the latest agency that has begun sanctioning businesses for failing to protect sensitive customer data stored electronically, bringing the total number of agencies enforcing data security practices to three.
In October, the FCC ordered two telecommunications carriers, TerraCom, Inc. and YourTell America, Inc., (the Companies) to pay ten million dollars for failing to employ reasonable data security practices to protect customer information, and for failing to notify customers of the breach. Evidence showed that there had in fact been multiple cases of unauthorized entry and access to the customer data, which the companies kept in readily accessible servers connected to the web. The Companies did not encrypt the data, nor was the data password protected.
The Commission decided, with two of the four Commissioners dissenting, that in failing to provide reasonable data protection measures, the companies were in violation of Title 47 sections 201(b) and 222(a). Section 201(b) prohibits unjust and unreasonable charges, practices, classifications, and regulations in connection with communications services provided. While section 222(a) states that every telecommunications carrier has a duty to protect the confidentiality of a customer’s proprietary information.
In justifying imposing liability under section 222(a), the Commission first established that the data found to be insecure was “proprietary information” within the meaning of the section. Secondly, the Commission established that the Companies did in fact owe a duty to the consumers. And third, that the Companies breached that duty when they failed to protect consumer data which in turn amounted to a violation of section 222(a).
Unsecured Data Found to be Proprietary Information
The Commission reasoned that the way the term “privacy” was used in the headings of sections 222(a) and 222(c)(1) it was clear that “proprietary information” encompassed all private information that a consumer has an interest in maintaining secret including names, addresses, phone numbers, and social security numbers.
However, § 222(c) explicitly refers to “consumer proprietary network information” which the statute defines as “information that relates to the quantity, technical configuration, type, destination, location, and amount of use of a telecommunications service…that is made available to the carrier by the customer solely by virtue of the carrier-customer relationship.” It goes on to specify that “information contained in the bills pertaining to telephone exchange service or telephone toll service received by the customer or carrier.” However, it explicitly makes an exception for “subscriber list information.” Part 64 of Title 47 provides that subscriber list information includes names, phone numbers, and addresses of subscribers.
Accordingly, it would seem to me that the “proprietary information” does not include the type of sensitive subscriber information as interpreted by the Commission. Commissioner O’Rielly explained in his dissenting statement that section 222 does not apply to protection of data online, and in fact cannot be interpreted to do so because the legislative history clearly shows that the goal of the section was to prevent carriers from gaining an anticompetitive advantage. In fact, the legislative history suggests that the privacy portion was added to prevent carriers from using proprietary information for its own marketing purposes, not to provide a general privacy protection to consumers.
Duty Owed to Consumers
The Companies argued that section 222(a) does not become operative until particular consumers become actual subscribers. To this end, the Companies argued that a percentage of the records accessed without authorization belonged to mere applicants, and thus were not protected by the section 222(a), which it argued applied only to customers. The Commission quickly dismissed this argument asserting that a carrier’s duty does not change simply because a consumer has not yet subscribed to the services. Thus, the Commission held that the Companies owed a duty to the consumers.
Breach of Duty
The Commission decided that the Companies did breach their duty to their customers because they failed to provide adequate protection for the customer data. Specifically, the Commission stressed that the Companies failed to provide even the most basic security measures, such as password protection or encryption. The Companies only used random URLs when storing the data, which could easily be accessed using a simple Google search. Additionally, it was determined that the Companies knew or should have known that the data was vulnerable and exposed the customers to “potentially substantial injury.” Accordingly, the Commission found this to be a flagrant violation of section 222(a).
Second, the Commission determined that the Companies violated section 201(b) when it failed to employ just or reasonable measures to protect consumers’ proprietary information. As stated above the Commission determined that the Companies failed to use even the most basic protection measures, and secondly, this conduct created unreasonable risk of unauthorized access. Further, the Companies were found to employ deceptive practices by misrepresenting their security measures. According to the Companies’ privacy policies, they employ reasonable security measures to protect the private information of their customers. The Companies also claimed that these measures were updated to reflect the latest technologies.
However, two dissenting Commissioners argued that the Commission had not identified a clear set of rules to govern the conduct of companies in regards to data protection. As such, the Commission has imposed a duty on companies to employ reasonable security practices to protect customer data, but has never specified what such conduct is. Accordingly, the dissents argue that the Commission has violated the Companies’ due process right by failing to provide regulation that sufficiently warns a party about what is expected of it before depriving it of its property.
Clearly there is disagreement within the Commission on whether the FCC even has a firm legal basis on which to impose this liability on carriers. Unlike the FTC which has been enforcing data security practices since 2002, or the SEC which began data security enforcement in 2008, the FCC is fairly inexperienced in this area. Additionally, the issue of having “too many cooks in the kitchen” arises here, especially since different standards are set by each agency, which may result in confusion and inconsistencies. Lastly, the FCC is not even sure whether it can be in the kitchen!
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