Written by Ruth Promislow and David Cassin

The United States Federal Trade Commission ("FTC") strikes again. In the action by the FTC involving the cybersecurity breach of Toronto-based AshleyMadison.com (operated by Ruby Corp. and hereafter referred to as "Ashley Madison"), a settlement has been reached.

The settlement concludes an investigation by the FTC, and participating states, into Ashley Madison's unfair and deceptive practices regarding misrepresentations made to its customers, which were exposed in its notorious data breach in July 2015.  The settlement, which was announced by the FTC on December 14, 2016, requires Ashley Madison to pay a fine of US$1.6 million to settle the FTC and state investigations.¹

This FTC action against Ashley Madison is a recent example of the enforcement actions commenced by the FTC against U.S. companies for failing to adequately safeguard their consumers’ personal information.²

Over the past 10 years, the FTC has repeatedly exercised its authority to regulate cybersecurity in the United States.  Since 2014, the FTC has commenced 18 enforcement actions relating to data security.³

Penalties and fines levied by the FTC are not insignificant. In particular, in December 2015, the FTC levied fines of US$100 million against LifeLock, in part for misrepresentations it made to customers regarding the protection of their private information.⁴ Prior to the LifeLock fine, the FTC made headlines by imposing a US$22.5-million fine on Google for its 2012 data breach.⁵

The Complaint and Settlement

The FTC’s complaint against Ashley Madison alleged that the company engaged in deceptive and unfair practices. In particular, the FTC alleged that the company had weak security practices including:

• failing to adequately train company staff and management on data security duties;  
• failing to have a written security policy; and
• failing to monitor and verify the effectiveness of security measures.⁶

In addition, the FTC alleged that Ashley Madison made a number of misrepresentations about its data security, including:

• that it took reasonable steps to ensure the website was secure;
• that it received a ‘Trusted Security Award’ (which appeared to have been fabricated);
• that certain communications received by users were from actual women when in fact they were from computer bots; and
• that it deleted user profile information for users who paid for a ‘Full Delete’ of their profile.⁷

The settlement reached between the parties originally required Ashley Madison to pay US$17.5 million.⁸ However, as a result of the company's inability to pay the total settlement amount, the parties agreed for an immediate payment of US$1.6 million to be divided evenly amongst the states and the FTC.⁹ The settlement with Ashley Madison also requires the company to maintain a comprehensive information security program, and obtain biennial data security assessments.¹⁰

Despite the ultimate fine of US$1.6 million being considerably lower than those awarded in the LifeLock and Google breaches, the settlement still sends a clear message to businesses who fail to take reasonable steps to protect consumers’ data: it will come at a significant cost.

Foreshadowing of Canadian Regulatory Enforcement

The FTC’s basic consumer protection authority is grounded in section 5 of the Federal Trade Commission Act.¹¹ Section 5 provides that unfair or deceptive acts or practices in or affecting commerce are unlawful.¹² The FTC’s jurisdiction under this section with respect to data security enforcement actions has been specifically upheld by the Third Circuit Court of Appeals.¹³

In Canada, the Competition Bureau investigates and oversees complaints of unfair or deceptive practices and enforces the provisions of the Competition Act.¹⁴ If the Competition Bureau finds a company non-compliant, it can initiate enforcement proceedings before the Competition Tribunal or before a civil court. Upon application by the Commissioner of Competition, the court can order a corporation with unfair or deceptive practices to pay an administrate penalty of up to $10 million and, for each subsequent order against that corporation, an amount of up to $15 million.¹⁵

Canada’s Competition Bureau has not sought to regulate cybersecurity through its authority to oversee unfair or deceptive practices.  However, as Canadian businesses continue to be exposed to cyber-attacks, the FTC’s success in policing cyberspace in the United States may be influential in ushering in a new era of cyberspace regulatory enforcement by the Competition Bureau in Canada.

Businesses operating in Canada should not rule out the risk of significant administrative penalties levied by the Competition Bureau upon failure to take adequate measures to protect personal data from cybersecurity attacks.

Notes:

¹ Federal Trade Commission, “Operators of AshleyMadison.com Settle Charges”, (14 December 2016).

² The Federal Trade Commission has brought over 60 enforcement actions related to data security breaches since 2000, see: Federal Trade Commission, Data Security Cases.

³ See: Federal Trade Commission, Data Security Cases.

⁴ Federal Trade Commission, “LikeLock to Pay $100 Million”, (17 December 2015).