FTC Power Tested at Data Trial

30 May FTC Power Tested at Data Trial



Just to keep you up to date with what’s happening in the trial, please read the following by Jenna Greene of The National Law Journal Screen shot 2014-05-29 at 7.56.19 AM


In a challenge to the Federal Trade Commission’s power to go after companies for data security breaches, lawyers for medical-testing company LabMD Inc. last week called the government’s allegations against it “far-reaching and ludicrous.”

Dinsmore & Shohl partner William Sherman II argued before Chief Admin­istrative Law Judge D. Michael Chap­pell last week that the FTC overreached when it sued LabMD in August 2013 for failing to protect consumer privacy in violation of Section 5 of the FTC Act.

“This case is more about what could have happened, what might happen or might have happened, but certainly not about what happened,” Sherman said as the proceeding opened on May 20. There was no evidence that any consumer was harmed by a data breach that revealed personal information for nearly 10,000 people, he said.

FTC attorney Alain Sheer responded with a methodical and lengthy list of LabMD’s data security shortcomings. The company’s data security practices “were not close to being reasonable,” he said. As a result, highly sensitive information — including names, birth dates, Social Security numbers and medical-test results for conditions such as ­cancer — was “out there for the world to see.”

LabMD’s security, he said, “was equivalent to a castle with half a moat and holes in its outer walls.”

Among the key questions before the judge: Can the FTC go after LabMD for the breach even though the agency has never specifically promulgated data security standards? Furthermore, the U.S. Department of Health and Human Services (HHS) already regulates privacy and data security in the health care field under the Health Insurance Portability and Accountability Act of 1996 — can the FTC impose stricter standards on top of those rules?

LabMD said in a pretrial filing, “If FTC may lawfully overregulate HHS, add to [the health act] and attack LabMD using its Section 5 unfairness authority … it may overregulate in the fields of employment law or nuclear energy or any other myriad of regulated areas which naturally could harm consumers. Clearly then, there is no end to FTC’s power.”

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Michael Daugherty

Michael Daugherty is President & CEO of LabMD, an Atlanta-based clinical and anatomic medical laboratory with a national client base. Mike founded LabMD in 1996 after 14 years in surgical device sales with U.S. Surgical Corp. and Mentor Corporation. Outside of LabMD, enjoys playing tennis, travel, and flying his Cirrus SR22 Turbo single engine aircraft.