On July 29, 2016, the Federal Trade Commission (“FTC” or “Commission”) reversed an FTC administrative law judge’s (“ALJ”) opinion which had ruled against the FTC, finding that the Commission had failed to show that LabMD’s conduct caused harm to consumers to satisfy requirements under Section 5 of the FTC Act. In reversing the ALJ, the FTC issued a unanimous opinion and final order that concluded, in part, that public exposure of sensitive health information was, in itself, a substantial injury.

The FTC initially filed a complaint against LabMD in 2013 under Section 5 of the FTC Act, alleging that the laboratory company failed to “provide reasonable and appropriate security for personal information on its computer networks,” which the FTC claimed lead to the data of thousands of consumers being leaked. The complaint resulted from two security incidents that occurred several years prior, which the FTC claimed were caused by insufficient data security practices.

In its opinion, the FTC concluded that the ALJ had applied the wrong legal standard for unfairness and went on to find that LabMD’s data security practices constituted an unfair act or practice under Section 5 of the FTC Act. Specifically, the Commission found LabMD’s security practices to be unreasonable – “lacking even basic precautions to protect the sensitive consumer information on its computer system.” The Commission stated that “[a]mong other things, [LabMD] failed to use an intrusion detection system or file integrity monitoring; neglected to monitor traffic coming across its firewalls; provided essentially no data security training to its employees; and never deleted any of the consumer data it had protected.” As a result of these alleged shortcomings in data security, medical and other sensitive information for approximately 9,300 individuals was disclosed without authorization.

Further, and perhaps more importantly, the Commission concluded that “the privacy harm resulting from the unauthorized disclosure of sensitive health or medical information is in and of itself a substantial injury under Section 5(n), and thus that LabMD’s disclosure of the [ ] file itself caused substantial injury.” Thus, contrary to the findings of the ALJ, the Commission essentially held that the mere exposure of sensitive personal and health information into the public domain may be enough to constitute a substantial injury for purposes of Section 5, without any proof that the information was ever misused.

As a result, the FTC ordered LabMD to establish a comprehensive information security program, obtain independent third party assessments of the implementation of the information security program for 20 years, and to notify the individuals who were affected by the unauthorized disclosure of their personal information and inform them about how they can protect themselves from identity theft or related harms.

Takeaway: While LabMD has announced its intention to appeal, the FTC’s decision reinforces its role as an enforcer of data security, even in the health care arena, where OCR has been the traditional enforcer of HIPAA and health care data breaches. Thus, in addition to OCR, health care entities must continue to monitor FTC enforcement actions to see if there are any additional or conflicting data security standards mandated by both agencies. Any companies handling PHI should, therefore, continue to ensure that their data security policies and procedures are being implemented and followed in accordance with industry standards. Inadequate security safeguards may contribute to data breaches resulting in government investigations and enforcement actions – not just by OCR, but the FTC as well.